Nasir al-Shair, a senior Hamas politician, was released near the city of Nablus in the West Bank on Wednesday afternoon.
Al-Shair told a crowd of supporters: "My arrest was not justified. It was part of the aggression waged against the Palestinian people."
Osama al-Saadi, al-Shair's lawyer, said that the deputy prime minister was being released without charge.
"The court admitted there was not enough evidence to keep him in jail," he said.
Al-Shair was released after an Israeli court on Wednesday overturned another court's decision on September 25 to deny bail to al-Shair who was being held on suspicion of belonging to a "terrorist organisation".
Al-Shair was arrested in the West Bank city of Ramallah on August 19.
As part of the court order releasing him, al-Shair is not allowed to go to Ramallah, where the Palestinian government is based, for two weeks.
A total of 30 Hamas politicians and four cabinet ministers remain in custody.
They were arrested by Israel in late June after Hamas fighters took part in a cross-border raid from Gaza that captured an Israeli solider.
An Israeli military court in the occupied West Bank last week reneged on an earlier decision to release 21 of them on bail, ordering that the officials remain in detention.
The military prosecution has charged the 21 Hamas members with belonging to a "terrorist group" and said they posed a security threat to Israel.
The Israeli army has made no immediate comment on al-Shair's release.