The meeting was scheduled to begin at 1230 IST but started over an hour late, Israeli media said, as Netanyahu sought to win over opponents within his own rightwing Likud party.
While the names of the prisoners have yet to be officially published, or even revealed to ministers, they reportedly include militants convicted of killing Israeli women and children or Palestinians suspected of collaborating with Israel.
An unofficial list published by Almagor, a group representing Israeli victims of Palestinian attacks, said that candidates for release also included those jailed for acts such as the killing of a creditor, murder during car theft and a man convicted of strangling his wife whom he suspected of adultery.
The premier said in an open letter published on his Facebook page that he too had deep misgivings.
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"This is an incomparably difficult decision," he wrote. "It is painful for the bereaved families, it is painful for the entire nation and it is also very painful for me."
Israeli media reported today that the far-right Jewish Home party intends to vote against the plan, while the equally hardline Yisrael Beitenu had given its ministers a free vote.
Inside the Likud, deputy defence minister Danny Danon urged the party's ministers to vote "no".
"The message we are giving the terrorists is that, at the end of the day, we are freeing them as heroes."
Commentators nevertheless expected Netanyahu to win the vote, albeit by a narrow margin.
A Palestinian official told AFP yesterday that the US-brokered renewal of peace talks, stalled since September 2010, would open in Washington on Tuesday.
Qadura Fares, head of the Palestinian Prisoners' Club which tracks the well-being of Palestinians in Israeli jails, said today that there would be no talks unless all 104 prisoners returned to their homes.
In past deals, Israel has expelled some freed prisoners from the occupied West Bank or annexed east Jerusalem to the Gaza Strip or abroad but Fares said that would not be acceptable this time.
"Expulsion is punishment," he said. "These people. Who are now over 50 years old, all of them sick, need to be released to their homes."
The cabinet will hear a formal statement from Netanyahu on the resumption of peace talks and mandate a ministerial committee to handle the prisoner release, the government website said.