One-third of the prisoners will be freed when this agreement is made final, a third before Palestinian elections, and the rest when negotiations are completed on the final stage of the new Israeli-Palestinian relationship, which could still be four years away.
A Foreign Ministry spokes-man said that those sentenced for murdering Israelis would not be released early, but another official hinted that they might relent once public opinion was accustomed to seeing prisoners go home.
In any case, yesterday's announcement is the first time Israel has committed itself to a timetable for mass prisoner releases. If followed through, this will give Mr Arafat a confidence-building achievement to show his people, for whom the continued imprisonment of thousands of Palestinians is a bewildering irritant.
Mr Arafat said on his return to Gaza yesterday that his marathon discussions with Mr Peres in the Egyptian Red Sea resort of Taba had been "important and historical". The Israeli Foreign Minister was more cautious. "We did not complete the work," he said before briefing the Prime Minister, Yitzhak Rabin, in Tel Aviv. "There is still a great deal of work to be done."
A Palestinian spokesman, Marwan Kanafani, predicted that the talks, which resume at a lower level tomorrow, could reach a definitive agreement in two weeks. The director-general of the Israeli Foreign Ministry, Uri Savir, thought it would be nearer a month. Mr Kanafani warned: "If we don't have an agreement on all the issues, we don't have an agreement."
The main stumbling-blocks remain Hebron - where about 450 of the most militant Jewish settlers live in the midst of 100,000 Muslims - and the division of scarce water resources. An Israeli official admitted privately that the Hebron negotiations were "deadlocked". The Palestinians demand that the holy city, the burial place of Abraham, Isaac and Jacob, be treated like the other six Arab towns which the Israeli army has agreed to evacuate.
Israel insists on retaining a military presence to protect the settlers, whose ultimate fate is due to be negotiated in "final-status" talks beginning next May. The Israelis are trying to devise a system where troops would be deployed as unobtrusively as possible, so as not to impinge on the daily lives of the Arabs. It may require some form of joint Israeli-Palestinian patrolling, but so far neither party is budging.
The water issue has been set aside for the time being. The two sides accepted a suggestion by the US Secretary of State, Warren Christopher, to refer it to a US-Israeli-Palestinian working group. Water is not being allowed to hold up the redeployment or the elections, which the Palestinians hope to hold by the end of this year.
What has been agreed is that Israeli troops will withdraw from all the main towns except Hebron, though the evacuation of Ramallah and Bethlehem may be delayed.
The Israeli army will continue to patrol the 450 West Bank Arab villages and roads used by settler traffic.