JERUSALEM – Israel yesterday approved the release of 170 Palestinian Arab prisoners in a goodwill gesture to Egypt and encouragement to interim Palestinian Arab leader Mahmoud Abbas in hopes for future negotiations.

Prime Minister Sharon also neared agreement yesterday with the moderate Labor Party to expand his coalition government and ensure approval of next year’s pullout from Gaza.

The developments added impetus toward ending four years of bloody Israeli-Palestinian Arab violence and moving back to the negotiating table in the post-Yasser Arafat era.

The Palestinian Arab prisoner decision followed Egypt’s December 5 release of Azzam Azzam, an Israeli Arab who served eight years in prison on an espionage charge, in exchange for six Egyptians suspected of planning attacks on Israeli soldiers.

Mr. Sharon called the decision a “goodwill gesture” and spoke of “deep friendship” for the president of Egypt, Hosni Mubarak.

A senior Israeli official said the move was also aimed at interim Palestinian Arab leader Mahmoud Abbas, who is the leading candidate in a January 9 election to replace Arafat.

The official, speaking on condition of anonymity, said Israel would consider further releases if the Palestinian Arabs take action against terrorists.

Israel tacitly supports Mr. Abbas in the election, viewing him as a moderate pragmatist. Mr. Abbas has made releasing prisoners a priority, and Israel’s move could boost his standing.

Israel holds an estimated 7,000 Palestinian Arab prisoners, many accused of security-related crimes. Officials said the prisoners to be freed next week were not actively involved in attacks on Israelis. The Israeli daily Haaretz said 120 of the prisoners are members of Mr. Abbas’s Fatah Party. The others were jailed on minor offenses.

Palestinian Arabs, who have long demanded the release of all prisoners, gave yesterday’s announcement a cool reception.

“We consider this step a cosmetic one. We have not been consulted about this release,” said Radi Jaraie, the deputy Palestinian Arab minister of prisoner affairs.

Palestinian Cabinet minister Saeb Erekat and top Sharon aide Dov Weisglass met yesterday to start high-level coordination of election plans. Mr. Erekat said more meetings were planned.

Mr. Sharon was maneuvering yesterday to avoid calling an Israeli election, nearing an agreement with his rivals from the opposition Labor Party on a joint government that would ensure a Cabinet majority for his plan to pull out of Gaza and part of the West Bank next year.

Mr. Sharon lost his majority because of internal opposition to the pullout plan. Without Labor, his minority government is vulnerable to being toppled in parliamentary no-confidence votes, forcing an election.