 Around 170,000 staff have not been paid since March last year |
Relieved Palestinians queued to get cash outside banks and ATM machines.
But the Western-backed Palestinian government, based in the West Bank, refused to pay thousands of allies of Hamas, which now runs the Gaza Strip.
The wages were paid three days after Israel transferred $117m (£58m) to the new emergency government.
An estimated 170,000 employees on the Palestinian Authority books have received only partial pay packets since March 2006.
Funds flowing
Israel and Western countries imposed economic boycotts after Hamas came to power following elections in January 2006.
"This is the first time I received my complete salary in more than a year," said Jasser Sbai, 51, who works in the agriculture ministry in the West Bank political capital of Ramallah.
"Unfortunately most of this salary will go to the electricity company and shops because I owe them too much," he added.
Israel had frozen monthly transfers of up to $60m (£29.7m) worth of customs duties, levied on goods destined for Palestinian markets that transit through Israeli ports.
It began releasing those funds this week, after Palestinian Authority President Mahmoud Abbas sacked Hamas following its takeover of the Gaza Strip.
However, Hamas said 23,000 civil servants were still not being paid because of links to the Islamist movement.
Hamas, blacklisted as a terrorist organisation in Israel, condemned the decision not to pay its employees.
