The settlement erases a $116 million default judgment entered against the Palestinian Authority and Palestine Liberation Organization for refusing to respond to the lawsuit. It also lifts a judge's 2005 order that had barred the Palestinian Authority from transferring or withdrawing assets in the United States.

U.S. citizen Yaron Ungar, a 25-year-old rabbinical student, and his pregnant wife, Efrat Ungar, were killed in June 1996 in a drive-by shooting by gunmen from the Islamic militant group Hamas while driving near Beit Shemesh, west of Jerusalem. Their infant son, Yishai, who was with them in the car, survived unharmed. Several Hamas members were convicted in the shooting.

The Ungars' relatives sued in 2000 in Rhode Island, where the lawyer representing their estate is based, under a federal statute called the Anti-Terrorism Act, which allows the estates of U.S. citizens killed by terrorist attacks overseas to recover damages. The law was enacted after Leon Klinghoffer was killed during a 1985 terrorist attack board the Achille Lauro cruise ship.

Ungar family lawyer Max Wistow declined to comment Monday, as did Palestinian Authority attorney Mark Rochon.

The settlement represents a stark shift in legal strategy for the Palestinian Authority, which for years had shrugged off the jurisdiction of the U.S. courts in this case and similar suits, refusing to make then-leader Yasser Arafat available for questioning or to participate in the information-sharing process known as discovery. The Western-backed Palestinian Authority had argued that Hamas alone was responsible for the Ungars' deaths, but the suit alleged the Palestinian Authority and the PLO provided a safe haven and operational base for Hamas.