Sharon's security cabinet, comprising his most senior ministers, voted nine to one for the plan on Tuesday, which military radio said would eventually see families receive between $200,000 and $300,000 each.
While sources described the meeting as stormy, it represents the first concrete step towards evicting all 8000 of Gaza settlers and residents from four illegal Jewish enclaves in the West Bank next year.
The sole dissenter was Welfare Minister Zevulun Orlev, a member of the far-right National Religious party, the political mouthpiece of the settler movement.
Eran Sternberg, a spokesman for the Gaza settlers, vented his fury at the proposals, saying Sharon had no mandate for the pullout.
"This is a hysterical reaction on the part of the prime minister who feels he is about to lose power," he said.
But Sharon said last month he expected his full cabinet to vote on the final version of the plan on 24 October before parliament had its say on 3 November.
The security cabinet vote is another sign of Sharon's determination to forge ahead with a project which has split his party, alienated his traditional supporters among settlers and even put his life in danger.
Police revealed on Tuesday they were investigating death threats against Sharon and the head of the disengagement administration, Jonathan Bassi, which had been received in recent days.
Tens of thousands demonstrated against the pullout on Sunday night, while Finance Minister Benjamin Netanyahu has urged Sharon to submit the plan to a referendum.
However, Sharon said in a series of interviews published on Tuesday that there was simply no time to hold a nationwide poll.
"The disengagement plan will be implemented without delay, according to the dates that were set. Were a referendum not to delay the process at all I might be able to consider it, but that isn't the situation," Sharon told the Maariv daily.
Hardline settlers have protested
leaving Israel's illegal colonies
The prime minister then took a swipe at Netanyahu, his chief rival within the main governing Likud party, without mentioning him by name.
"Regretfully, there are people who are trying to torpedo and to delay the implementation of the plan, and who are motivated by foreign interests," he said.
Arafat's days numbered
Sharon also had a go at Palestinian President Yasir Arafat, renewing a threat to expel him from the West Bank.
In an interview with the top-selling Yediot Aharonot, published a year after the security cabinet approved in principle Arafat's "removal", Sharon said the 75-year-old would be banished "at a time that suits us".
The Israeli leader has made a number of previous threats against Arafat's life, but has settled for effectively imprisoning him for nearly three years in the partly destroyed Palestinian Authority headquarters in Ram Allah.
However, Palestinian Negotiations Minister Saib Uraiqat said the threats "are very serious and are preparing the ground for a physical attack on president Arafat".