Jenin, a stronghold for Palestinian resistance, was not one of the five towns Israel agreed to transfer under a February ceasefire package.
But Israel agreed to pull out of Jenin ahead of the summer withdrawal from Gaza and the northern West Bank so Palestinian security forces can take control of vacated West Bank settlements, ministry spokesman Tawfiq Abu Khoussa said on Wednesday.
From a position in Jenin, Palestinian police would be better able to keep fighters and looters from taking over the settlements once Israel withdraws.
No timetable set
Israeli security officials confirmed the handover was discussed at a meeting on Tuesday. Separately, a Palestinian security official said there were "serious" talks between the two sides on the handover of two of the five towns that were part of the February summit package, Qalqiliya and Bethlehem.
Both sides said no timetable had been set.
In a February truce agreement with the Palestinians, Israel pledged to give them control of Jericho, Tulkarim, Qalqiliya, Bethlehem and Ram Allah.
It has so far handed over only Jericho and Tulkarim, saying that Palestinian security forces have not done enough to secure Israelis.
Israeli Prime Minister Ariel Sharon and Palestinian leader Mahmoud Abbas are expected to discuss the transfer of Palestinian towns at a 21 June summit.