Washington: Israel would exchange as many as 400 Palestinian prisoners to secure the release of an Israeli soldier who has been held by Palestinian fighters for nearly two years under a deal being negotiated with the assistance of Egyptian mediators, Egyptian Foreign Minister Ahmad Aboul Gaith has said.

While the broad outlines of a possible agreement have been previously reported by anonymous sources, Aboul Gaith is the first senior official to publicly acknowledge that Israel is indirectly negotiating with Hamas.

Speaking to the Council on Foreign Relations in Washington, Aboul Gaith asserted that "we're making good progress", though some sources say the talks have bogged down.

Israel is trying to reduce the size of the prisoner release, and Hamas is pressing for a ceasefire that would include Gaza and the West Bank.

Aboul Gaith made his remarks on the same day that former US president Jimmy Carter met with an exiled leader of Hamas.

Period of quiet

The Israeli Embassy declined to comment on Aboul Gaith's remarks, citing a policy of not commenting on negotiations involving captive soldiers. Israel has called for the unconditional release of Cpl Gilad Shalit, who was abducted in 2006.

Aboul Gaith said there are three basic elements to the negotiation - an unofficial cease-fire, the exchange of prisoners and an opening of Gaza's long-closed border crossings.

He said it would be more advantageous for peace talks if a unity government could be restored between Hamas and Fatah. Aboul Gaith said Egypt saw little prospect of a reconciliation "for the time being".

As a result, he said, the first step is to establish "a period of quiet" between Israel and Hamas, which, he said, "sets well with Israelis" because they do not want "a signed written agreement with Hamas".

Under this arrangement, Hamas and other groups would stop firing missiles into Israel and Israelis would be bound not to target Palestinian activists inside Gaza or fire on Gaza. "There will not be targeted killings or assassinations or what have you," he said.

That would be followed by an exchange of prisoners. Shalit would be handed over to Egypt, which in turn would deliver him back to Israel.

"At the same time, there will be a release of possibly a figure of around 400 Palestinians," Aboul Gaith said, noting that Israel holds 12,000 Palestinians.

Finally, he said, the long-closed crossings between Gaza and Israel would be opened, under arrangements involving the Palestinian National Authority and both Egyptian and US observers, he said.