French President Nicolas Sarkozy and German Chancellor Angela Merkel both issued calls Friday for the release of kidnapped soldier Gilad Shalit, who has been held by Hamas for over five years.

"We are announcing that this is a very important matter," Merkel said after meeting with Sarkozy.

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However Hamas's military wing has vetoed the proposal, according to the sources.

The German mediator in the Shalit deal reportedly visited Gaza two months ago. The London-based al-Sharq al-Awsat reported that Prime Minister Benjamin Netanyahu had "offered Hamas a good deal, better than anything offered by Olmert", Netanyahu's predecessor.

"Hamas's political leadership accepted the proposal, but the military leadership, which has ties with Iran, rejected it," the report says.

Egypt, another mediator in the deal, was also reportedly involved. "We have once again taken up managing the matter and we will work according to what we believe are better and improved terms within the framework of the changes that must be made," an Egyptian official told the London-based al-Hayyat.