The news adds to speculation the two sides could draw a line under more than four years of violence at Tuesday’s peace summit, which is to take place in the Red Sea resort of Sharm el-Sheikh.
The Palestinian Authority is expecting Israel to formally match an unofficial Palestinian ceasefire, which has seen a rare period of calm descend on the region.
Israeli media reported the troops would withdraw from Jericho “within the coming days”.
And Israel is reported to be ready to free 900 of jailed Palestinians, mainly those accused of minor security offences.
Israeli Army radio suggested 500 would be released after next week’s summit and 400 within three months.
While their freedom would boost Palestinian leader Mahmoud Abbas’s ceasefire campaign, he’s been lobbying for the release of those accused of major acts of violence.
But after meeting with his Israeli counterpart in Tel Aviv, Palestinian negotiations minister Saeb Erakat said there was still no consensus on the matter.
“There are disagreements on the Palestinian prisoners Israel should release,” he said.
But the news was welcomed in Washington, where the US State Department described the possible releases as “important and welcome” in helping to “sustain and maintain momentum in engagement between the parties”.
Tuesday’s summit is the clearest indication yet of tangible progress in the peace process, which ran aground after the roadmap plan was launched in 2003.
Israeli Deputy Prime Minister Shimon Peres predicted it would yield a joint declaration on ending violence that has claimed more than 4,700 lives since the Palestinian uprising broke out in September 2000.
However Jerusalem is playing down expectations, warning the talks wouldn’t focus on implementing the troubled roadmap.
“This summit will be an occasion for declarations, which will be of great significance, but it is still too early to have political negotiations on the roadmap,” a source close to President Sharon told the AFP news agency.
Key differences between the two sides remain, such as the borders of a future Palestinian state, the plight of Palestinian refugees and the status of Jerusalem.
The processes is also expected get a boost by a frenzy of diplomatic visits in the coming week, topped by new US Secretary of State Condoleezza Rice.
On Thursday US President George W. Bush vowed in his State of the Union address that an independent Palestinian state was now within reach and pledged US$350m to support Palestinian reforms.
French Foreign Minister Michel Barnier and his Canadian counterpart, Pierre Pettigrew, are also due to meet both leaders in the coming days.
On the ground, a Palestinian teenager died of injuries he sustained last month during an Israeli incursion into northern Gaza, while a Palestinian militant was shot by Israeli soldiers following a grenade attack on a military vehicle in southern Gaza.
Two Israeli soldiers were also wounded, one seriously, by Palestinian gunmen outside the West Bank town of Hebron.
And Israeli soldiers say they arrested a Palestinian teenager carrying an explosive belt in his bag.
Troops at the checkpoint near the West Bank town of Nablus stopped the 15-year-old boy, who also had a home-made gun and 20 bullets.