Israel is refusing to discuss the release of Hamas terrorists who were freed in the 2011 deal for kidnapped soldier Gilad Shalit but then rearrested after Hamas kidnapped three Israeli teens in June, a senior defense official said on Tuesday.

Hamas had raised their release as one of its demands in the Egyptian-mediated talks on a long-term cease-fire in the Gaza Strip that began in Cairo last week. But the official said Israel’s position, as presented in the talks, is that it refuses even to discuss any demands relating to the West Bank, including the release of the rearrested terrorists.

“We told them clearly and consistently: We’re willing to discuss Gaza,” the official said. “But nothing about the West Bank – not the [other Palestinian] prisoners and not those freed for Shalit.”

He said Israel is willing to discuss a deal in which it would release the Palestinians arrested in Gaza during the summer’s war in the Strip in exchange for the bodies of two soldiers killed during the fighting that Hamas is thought to hold. “But nothing else is up for discussion,” he insisted.

Hamas has claimed over the last few days that it is nearing completion of a prisoner exchange deal with Israel. Mushir al-Masri, a Hamas spokesman in Gaza, wrote on his Facebook page recently that “Hamas has bargaining chips,” apparently referring to the bodies of soldiers Hadar Goldin and Oron Shaul. But Israel has denied that any such deal is in the offing.

The senior defense official also discussed the 2015 defense budget. He said the defense establishment needs billions of shekels more than the budget increase already decided on by Prime Minister Benjamin Netanyahu and Finance Minister Yair Lapid.

Last week, Netanyahu’s bureau announced that the defense establishment would receive seven to eight billion shekels ($1.9-2.2 billion) to cover the expenses of the war in Gaza, plus a six billion shekel increase in the 2015 defense budget.

The defense establishment claims the war cost 8.6 billion shekels, and believes it will ultimately receive eight billion to cover these expenses. But it insists the 2015 defense budget, currently slated to total 57 billion shekels, is woefully inadequate for army’s needs. It is therefore seeking an additional six billion shekels, for a total increase of 12 billion shekels over 2014, which would bring the defense budget for next year to 63 billion shekels.

Otherwise, the senior defense official said, the Israel Defense Forces will have another “difficult year” like last year, in which the regular army will spend only three months training and the other nine months in operational activity, while the reserves won’t receive any orderly training at all. Under the current budget proposal, he said, the IDF will have only 24 billion shekels to spend on training and procurement, and therefore, “we’ll be back in the same crisis.”

“During discussions with both the cabinet and the Finance Ministry, we said clearly that this [budget] isn’t final,” he added. “The discussion is ahead of us, and I’ll fight this. A defense establishment budget for next year of 57 billion shekels is a political compromise.”