Reports on Israel public and army radio said the 442 prisoners would be released on Wednesday, including around 200 members of Islamic Jihad and Hamas.
The prisoners, among them administrative detainees, security prisoners, illegal workers and criminals, would be released after signing a form undertaking not to return to anti-Israeli violence, army radio said.
Earlier, radio reports said the 442 prisoners were in addition to the 540 approved early last week, which would have brought the total number to nearly 1,000.
An Israeli official later explained the number of people to be freed was lower than the original 540 since around 80 prisoners on the original list had already reached the end of their prison term and had been released within the last week.
Another 20 or so were still being checked by Israel's Shin Bet internal security services, the source said.
Last week, Israeli officials said 210 of those to be freed were members of Hamas and Islamic Jihad. It was not clear whether any of these were among the 20 or so prisoners being held back for further security checks.
The Palestinians have been pushing for the release of all their estimated 6,000 prisoners in Israeli jails.
A 40-year-old woman was seriously wounded and her three children were also hurt in southern Jerusalem late Sunday as Palestinian gunmen fired on their car, Israeli emergency service officials said.
"The meeting was serious but nothing new came from it"
Israeli public radio said the attack took place near Gilo, a Jewish neighbourhood built on annexed Palestinian land.
Palestinian group, al-Aqsa Martyrs Brigades claimed responsibility.
"A unit of our Brigades set up an ambush for Zionist settlers near the village of Wallaja and, when their vehicle passed our fighters they opened fire on it, hitting several of them," it said in a statement.
The group, which is linked to Palestinian leader Yasser Arafat's Fatah movement, vowed to "pursue resistance operations."
Palestinian security chief Mohammed Dahlan and Israeli counterpart, General Amos Gilad, meanwhile, failed to agree on further Israeli army withdrawals from West Bank cities, a
Palestinian source told French news agency AFP.
"The meeting was serious but nothing new came from it," said the source after a meeting between the two at the Erez checkpoint between northern Gaza and Israel.
"There is no agreement between us and Gilad about a withdrawal from Ram Allah and Hebron," he said.
In late July, Israel said it would withdraw from two more West Bank cities, thought to be Jericho and Qalqilya, following pullbacks in late June and early July from Bethlehem and in the Gaza Strip.
But the Palestinians have insisted the army hand over a major city like Ram Allah, saying a withdrawal from Jericho would be little more than cosmetic as it is already under Palestinian control.
Row over wanted fighters
On Sunday, the Palestinian leadership abandoned plans to expel 18 wanted fighters from Ram Allah.
A row over the 18, who were arrested Saturday at Arafat's headquarters and were to have been transferred to Jericho or Gaza, prompted the al-Aqsa Martyrs Brigades to threaten to end a truce.
But the group issued a new statement saying it remained committed to the suspension of anti-Israeli attacks. Fourteen of the group arrested in Ram Allah are Brigades members.
The Israeli government has urged the Palestinians to crack down on groups such as the Brigades, insisting that the ceasefire announced by the main militant groups on 29 June was insufficient.
Nabil Shaath (L) and Sylvan
Shalom met in Jeruslam on
Sunday for the first time.
But Palestinian minister of state without portfolio Abdelfatah Hamayel said the leadership was seeking "international guarantees" that "hundreds of wanted Palestinians" would not be targeted by Israeli attacks.
Israeli Foreign Minister Silvan Shalom met his Palestinian counterpart Nabil Shaath in Jerusalem for their first ever formal talks. It is believed that the meeting would give the peace process a further boost, on top of the prisoner releases.
After the meeting both ministers declared their commitment to working towards the implementation of the US-backed roadmap for peace and set up a joint committee which would discuss any obstacles.
But the differences between the two sides soon emerged as Shaath said that Israel's construction of a controversial security barrier was "creating a major rift in the peace process".
A senior Israeli official said the Palestinians had been told that the Israeli government had no intention of reversing plans to build the wall across the West Bank.
The Palestinians regard it as a move to pre-determine the boundaries of a future two-state settlement.
Israel insists its intention is merely to stop infiltrations by Palestinian fighters.
Although tensions on the ground remain, the truce by Palestinian groups including Hamas and Islamic Jihad has led to a sharp drop in violence.