The Obama administration is preparing to release convicted Israeli spy Jonathan Pollard from prison, according to U.S. officials, some of whom hope the move will smooth relations with Israel in the wake of the Iran nuclear deal.

Such a decision would end a decadeslong fight over Mr. Pollard, who was arrested on charges of spying for Israel in 1985 and later sentenced to life in prison. The case has long been a source of tension between the U.S. and Israel, which has argued that a life sentence for spying on behalf of a close...