Three of the prisoners released were from Gaza, eighteen from the West Bank and five from east Jerusalem.
They departed on buses from Israeli jails overnight and received hero's welcome on their return to the West Bank and Gaza, with jubilant relatives and officials lining up to greet them.
Palestinian Authority (PA) President Mahmoud Abbas waited at his headquarters in Ramallah to meet the released prisoners in the middle of the night.
He vowed that there will be no peace agreement with Israel if all Palestinian prisoners are not released.
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"There won't be a final agreement with Israel until all the prisoners are released," Abbas asserted.
Meanwhile, members of the bereaved families that lost relatives under attacks from Palestinians protested the release by marching from Netanyahu's Jerusalem residence to the Old City home of one of the freed prisoners.
The release came as Secretary of State Kerry planned a New Year's Day trip to push forward the peace process and find a lasting solution to decades-old conflict in the region.
This would be Kerry's tenth visit to the region since March. His last visit, a week-long trip, began on December 11.
This was the third batch of prisoners to be freed since August when Israel agreed to release 104 Palestinians in four phases to push ahead peace talks with the Palestinians that was resumed in July under US mediation after three years.
The Ministerial Committee for Prisoner Releases approved late on December 28 the release of the 26 Palestinians who were imprisoned before the 1993 Oslo Accords.
The prisoners had served sentences of between 19-28 years, the Prime Minister's Office said. They had been sentenced to life imprisonment and were convicted of murder or accessory to murder.