Egyptian envoy in Israel for prisoner talks

JERUSALEM, Nov 29 (Reuters) Egypt's intelligence chief held talks in Israel today on a possible prisoner exchange between Israel and Palestinian militants following a ceasefire in the Gaza Strip, officials said.

Omar Suleiman, who is also in touch with the governing Palestinian Islamist group Hamas, has served as a go-between in trying to end the crisis since militants seized an Israeli soldier in a cross-border raid last June.

Israeli and Palestinian officials said Suleiman was trying to arrange details of an exchange that would satisfy Israel and the groups in Gaza that captured Corporal Gilad Shalit. Among the factions is Hamas's armed wing.

After the Gaza truce took hold on Sunday, Israeli Prime Minister Ehud Olmert said for the first time that he was ready to free many jailed Palestinians, including long-serving prisoners, if Shalit was released.

The ceasefire, with the immediate aim of ending rocket fire from Gaza and an Israeli offensive into the territory, has also fuelled hope of a revival of peace talks that collapsed in 2000 before the start of a Palestinian uprising.

The sudden talk of peacemaking coincides with a burst of US-led regional diplomacy that brings U.S. President George W Bush and Secretary of State Condoleezza Rice to the Middle East today.

NEXT STEPS Israel has made clear that Shalit's release is essential for any further steps towards peace talks.

Suleiman met Defence Minister Amir Peretz on Wednesday and was due to see Olmert later.

''I have no doubt his presence ... has significance now and will have significance in the future,'' Peretz told reporters before meeting Suleiman.

An official in the Gaza Strip said there was still disagreement between Israel and the Palestinians over the number of prisoners who would be freed, with Hamas and the other factions demanding at least 1,400 in exchange for Shalit.

Israeli officials said there was no decision yet on which prisoners would be released and whether the number might include any who killed Israelis.

The timing of any exchange also remains unclear. While Israel has said it wants Shalit freed first, the militants want at least some prisoners to be released either at the same time or before.

While an exchange of prisoners might improve the prospects, talks on Palestinian statehood remain unlikely while the Hamas-led government resists Western demands to recognise Israel, renounce violence and accept past peace accords.

Hamas has been in so far unsuccessful talks with moderate Palestinian President Mahmoud Abbas on forming a unity government as a way to get a US-led aid embargo lifted.

But a senior Palestinian official said on Tuesday that Abbas believed the talks were at a ''dead end''. Abbas is due to meet Rice in the occupied West Bank tomorrow.

REUTERS PDM KN1735