Prime Minister Benjamin Netanyahu announced the measures a day before the Quartet of Mideast mediators - the United States, the United Nations, the European Union and Russia - was to meet in Germany to seek ways to revive stalled Israeli-Palestinian peace talks.
The Palestinians walked out in September, following a brief round of talks, after Netanyahu refused to extend a curb on settlement construction on war-won lands the Palestinians seek for their state.
The steps announced by Netanyahu on Friday included Israeli permission, in principle, for several infrastructure projects in Hamas-ruled Gaza, including electricity and desalination plants.
Israel and Egypt have sharply restricted access to the territory since the Islamic militant Hamas seized Gaza by force in 2007. In recent months, Israel has eased some of the restrictions, including approving the import of some badly needed raw materials for international reconstruction projects.
Netanyahu also offered Friday to begin talks with Hamas' rival, internationally Palestinian President Mahmoud Abbas, on developing a natural gas field off Gaza.
The Israeli leader also said he would allow the Palestinians to extend their security presence to more areas of the West Bank. For now, Abbas has limited control over only about 40 percent of the West Bank.
Netanyahu said the measures will help bring more stability and improve the lives of Palestinians, but are not a substitute to peace talks.
"I don't delude myself for a second that an economic peace is a substitute for political peace," Netanyahu said. "We need both and I hope that Abu Mazen (Abbas) will heed my call and enter direct negotiations with us."
Chief Palestinian negotiator Saeb Erekat said such gestures are not enough.
"Netanyahu wants to build more confidence through this? He needs to stand up and call for an end to settlements in the West Bank and East Jerusalem," he said, referring to lands Israel captured in the 1967 Mideast war.
Additional reporting by Dalia Nammari in Ramallah, West Bank.