Israel has released 26 Palestinian prisoners as part of US-brokered peace efforts, while announcing it will build more homes in Jewish settlements.

The freed detainees were given a jubilant reception by families and friends in Gaza and the West Bank.

They are the third out of four batches agreed by Israel in a US-led initiative to move peace talks forward.

Most of the 26 had been convicted of killing Israelis and almost all were jailed before the first Israeli-Palestinian interim peace deals were signed 20 years ago.

But outside the offices of Israeli Prime Minister Benjamin Netanyahu, families of Israelis killed or injured by the prisoners held a protest rally. They have consistently voiced anger and mounted unsuccessful court challenges against their release.

In an attempt to appease far-right members of his Likud party, Netanyahu is to push ahead with plans to build 1,400 more settler homes.

It is a move bound to anger the Palestinians along with an Israeli ministerial committee proposal to annex an area of the West bank likely to be the eastern border of any future Palestinian state.