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 tomorrow.
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.
The prisoner releases are hugely controversial in Israel, and reports say the men were driven away late at night in vehicles with darkened windows to avoid any display of triumphalism.
Meanwhile, Palestinian negotiators have reacted angrily to news that the Israeli authorities have approved the building of more than 1,000 homes in settlements on land claimed by the Palestinians.
Israel says the new homes will be built on land they would expect to keep as part of any future deal on territory.
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