A group of 26 prisoners, all convicted of attacks that happened before 1993, were driven out of a jail in minibuses with tinted windows.
Some are being taken straight to Gaza, others are going to the West Bank.
Palestinian and Israeli negotiators began direct talks two weeks ago for the first time in three years.
Another round of talks is due to begin in Jerusalem on Wednesday.
Israel agreed to release the 26 long-term prisoners as the first of 104 Palestinian and Israeli Arab inmates to be freed over the next few months.
Relatives and friends of the freed prisoners have gathered on the frontier with Gaza.
The inmates were named by Israel’s prison service shortly after midnight on Sunday, giving victims’ families 48 hours to submit legal challenges to the High Court.
Earlier on Tuesday, the court rejected an appeal by a victims’ rights group that objected to the release of all of the prisoners.
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