Twenty-six Palestinian prisoners set for release in the early hours of Wednesday have been moved to a jail in central Israel, reports say.
Direct peace talks are due to resume in Jerusalem hours after they are taken to crossings in Gaza and the West Bank.
US Secretary of State John Kerry said he spoke to Israel's Prime Minister, Benjamin Netanyahu, about the decision to approve 1,200 settlement homes.
Mr Kerry said the Palestinians were committed to pursuing peace talks.
Speaking during a trip to Brazil, Secretary of State Kerry, described his discussions with Mr Netanyahu on the settlement issue as "frank and open".
Mr Kerry said he planned to speak with the Palestinian President, Mahmoud Abbas, later on Tuesday. He said he believed the Palestinian leader was "committed to continue" peace talks with Israel.
Palestinian negotiators have accused Israel's government of trying to sabotage the talks, by deciding to issue tenders for building homes in East Jerusalem and the West Bank.
Israel has rejected criticism, saying every peace initiative so far has proposed that the settlements affected become Israeli territory.
Mr Kerry, on a visit to Colombia, stressed that Washington considered settlements "illegitimate" but added that the issue "underscores the importance of getting to the table quickly".
The 26 long-term prisoners set for release are the first of 104 Palestinian and Israeli Arab inmates to be freed over the next few months as part of the agreement to restart US-brokered direct peace talks after a three-year hiatus.
According to Israeli media, they were taken to Ayalon prison in Ramle overnight ahead of medical checks and a meeting with Red Cross representatives on Tuesday morning.
The inmates, all convicted of murder or accessory to murder, were named by Israel's prisons service shortly after midnight on Sunday, giving victims' families 48 hours to submit legal challenges to the High Court.
On Tuesday, the court rejected an appeal by Israeli victims' rights group Almagor, which objected to the release of prisoners.
Almagor's lawyer Naftali Wertzberger said Wednesday's scheduled release was unprecedented because it involved prisoners "with blood on their hands".
Some time after midnight on Tuesday, 14 of the prisoners are expected to be driven to the Erez border crossing into the Gaza Strip and the remaining 12 to the Betunia checkpoint near Ramallah in the West Bank.
Palestinian President Mahmoud Abbas is said to have told officials to prepare receptions for the prisoners arriving in the West Bank.
In a separate development, Israeli police said a missile fired towards the Red Sea resort of Eilat had been successfully intercepted by the Iron Dome missile defence system.
Residents had reported hearing a loud explosion and a siren. Analysts said it was the first time Iron Dome had intercepted a rocket fired at Eilat.
An Egyptian al-Qaeda-linked group, Ansar Beit al-Maqdis, said it was behind the attack.
Security and borders
In further comments on the implications of the Israel's decision on Sunday to issue tenders for 793 housing units in East Jerusalem and 394 in the West Bank, Mr Kerry said he did not expect the announcement to become a "speed bump" that would derail talks.
Wednesday's direct Israeli-Palestinian talks in Jerusalem follow a preparatory round in Washington a fortnight ago.
On Tuesday, it emerged that the municipality of Jerusalem had approved some 900 homes close to the Jewish settlement of Gilo in east Jerusalem. A city councillor was quoted as saying that construction would not begin for years.
About 500,000 Jews live in more than 100 settlements built since Israel's 1967 occupation of the West Bank and East Jerusalem. The settlements are considered illegal under international law, though Israel disputes this.
Israeli government spokesman Mark Regev told the BBC: "The construction decided upon in Jerusalem and in the settlement blocs is in areas that will remain part of Israel in any possible peace agreement."
The Palestinians have previously agreed in principle to minor land swaps.
But senior Palestinian negotiator Saeb Erekat said the Israeli government's steps were "simply destroying the two states solution".