The prisoners, mostly members of Abbas' Fatah faction, left the Ketziot prison camp in southern Israel Friday morning and traveled by bus to the West Bank city of Ramallah, where Abbas and family members greeted them.
"You cannot imagine how happy we are that you came back to us," Abbas told the crowd, reported Reuters. "But our happiness is missing something because we want all 11,000 prisoners to return to their families."
Israel made most of the arrests during the past seven years of fighting with the Palestinians. The fate of the prisoners is one of the most emotionally charged issues of the Israeli-Palestinian conflict.
Israel will not release inmates serving time for wounding or killing Israelis, in part because of the fear of public reprisal.
Earlier in the week, the families of victims of Palestinian attacks tried to block the release of the prisoners with a Supreme Court appeal, but the court backed the government, according to the Associated Press.
Israeli Foreign Ministry spokesman Mark Regev said the prisoner release is part of a package of goodwill gestures aimed to restart the peace process.
"We're hopeful that the combined steps by the Israeli government and the Palestinian government can bring about a new period of cooperation and dialogue, that we have turned the corner on the negative dynamic," he said, reported the AP.
But Palestinian Prime Minister Salam Fayyad said Israel must do more to improve relations.
"Your policy is a policy of small change. You do a little here, a little there," he told the Israeli daily Yediot Ahronot in an interview published Friday. "Israel is a large, strong country. Israel can allow itself to be more bold."
Besides releasing the prisoners, Israel has said it would stop hunting dozens of militants loyal to Fatah groups in return for promises that they return to civilian life, according to Reuters.
Efforts came as officials in Washington announced that President Bush and Jordan's King Abdullah will meet to discuss efforts to reinvigorate the political peace process between Israelis and Palestinians.