CAPTURED Israeli soldier Gilad Shalit will shortly be transferred by Hamas to Egyptian custody as the first step of an ambitious plan to lift Israel's siege of the Gaza Strip, restore Palestinian unity and free about 1100 Palestinian prisoners, Arabic reports say.

The report in the London-based Asharq al-Awsat newspaper comes in the wake of similar claims last week from European diplomatic sources, the official news agency of the Palestinian Authority and other sources.

Israeli security officials said they were unaware of any progress on the matter and Hamas Prime Minister Ismail Haniya said yesterday that the reports did "not reflect reality".

Despite these reservations, the sense that something major is afoot is widespread in the region.

According to the Asharq al-Awsat report, Corporal Shalit, who has been held in Gaza for three years without any visits by the Red Cross, will be visited by his family once he is transferred to Egypt. He will be held on "deposit" until Israel releases Palestinian prisoners.

The number of prisoners to be released has been the main point of contention since Corporal Shalit's capture. Hamas has demanded the release of 450 hard-core prisoners, some of them serving multiple death sentences for involvement in the detonation of buses and other terror attacks.

Israel has reportedly agreed to release only 175 persons on Hamas' list. Egyptian intermediaries have proposed a compromise figure of 325. The newspaper said Israel would release 400. In addition, Israel has already agreed to release about 600 other prisoners of lesser security weight, including women and youths.

Under the mooted deal, Israel would ease its blockade of the Gaza Strip, which has permitted entry of little more than food and humanitarian aid to the area's 1.5million residents for two years and paralysed the economy.

The Egyptian-brokered initiative, which reportedly has the blessings of Washington, goes well beyond a prisoner exchange and the lifting of the blockade.

The release of Corporal Shalit would be the first step in a process aiming at achieving Palestinian unity as well as an overall peace agreement between Israel and the Arab world.

Talks planned in Cairo between the Gaza-based Hamas movement and the Fatah movement, which dominates the West Bank, will focus on forming a unity government in the Gaza Strip until overall Palestinian elections will be held in January.

As a first step, the Egyptians are attempting to promote a prisoner swap between Hamas, which holds about 200 Fatah prisoners in Gaza, and Fatah, which holds about 800 Hamas prisoners on the West Bank.

If the Palestinians are able to resolve their internal differences sufficiently to establish a stable government, the way will be open to the resumption of peace negotiations with Israel.

The US and moderate Arab states, mainly Egypt, would play key roles in this process.

The international community advocates bilateral Israeli negotiations with the Palestinians, Syria and Lebanon.

Source: The Ausralian