Egyptian President Hosni Mubarak said Israel may release more Palestinian prisoners than expected as part of a possible deal for the release of Israel Defense Forces soldier Gilad Shalit, abducted by Palestinian militants in June.

Meanwhile, Israel reacted with caution Monday to reports of marked progress in efforts to win Shalit's freedom.

"The outlines of the agreement, which is not yet complete, affirm the release of the Israeli prisoner in exchange for an initial large batch of women and children and then the release of Palestinian prisoners in three batches," the state news agency MENA said, quoting comments made by Mubarak on Sunday night.

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"The president did not specify the number to be released but he indicated that the Israeli side had shown its willingness to release a number greater than expected," MENA said Monday.

But Israeli Cabinet Secretary Israel Maimon denied reports mostly in the Arab press that the sides were close to finalizing a deal by which the soldier would be freed in exchange for Israel's release of hundreds of Arab prisoners.

"There is not yet a deal," Maimon told Israel Radio. "The same foreign reports give expectations and optimism that are not correct. They talk about days... I think on this it's best to be more cautious."

Security sources refused to confirm or deny reports that Israel had received a sign of life recently from Shalit. Palestinian sources have told Haaretz that the sign of life was a letter written by the soldier to his father, Noam Shalit.

Nevertheless, Israel says reports in the Arab media of a deal to be clinched within a few days are too optimistic. The sources say progress has been made, but that there has been no "dramatic development" that would lead to Shalit's release so soon. The Israel Defense Forces said last week's decision by Military Court Judge Major Ronen Atzmon to release Hamas ministers jailed in Israel has no bearing on the deal. The military prosecution appealed the decision, and the ministers' release has been delayed.

A government source said Sunday in Jerusalem that talks over Shalit's release were "moving ahead and coming closer, but it is doubtful they will be completed in a week."

The prime minster's representative for the kidnapped soldiers, Ofer Dekel, is leading the talks through Egypt, and apparently went to Cairo recently.

Regarding the reports of a letter, Gilad's father Noam Shalit told Haaretz over the weekend, "I cannot comment on statements or all the headlines in the Arab press." Shalit said no Israeli official had informed him of a breakthrough in the talks.

The Saudi newspaper Ukaz reported this weekend that Shalit would be transferred to Egypt on Monday, while on Thursday the London-based Al Quds al Arabi said he had been moved that day. Both papers reported that a prisoner swap had been finalized in a meeting between Palestinian Authority Chairman Mahmoud Abbas, Egyptian intelligence head Oman Suleiman, and Shin Bet security service chief Yuval Diskin in Jordan last Tuesday, although apparently no such meeting had taken place.

Noam Shalit is closely following developments in the Palestinian arena.

"I know that Abu Ala [former PA prime minister Ahmed Qureia] is in Damascus and Abu Mazen [Abbas] said that before the new government is established, the Shalit affair has to come to an end. Logic says this is true, and I hope all this shows progress toward an end to the affair."

Shalit accepted an invitation by former MK Abdulwahab Darawshe Sunday to come to the Arab Democratic Party headquarters in Nazareth, where he reiterated his plea to the kidnappers to take advantage of the holidays to release his son in exchange for Palestinian prisoners.

Representatives of the families of the soldiers being held captive in Lebanon, Udi Goldwasser and Eldad Regev, will take part this week in a large demonstration against terror. The rally, organized by the Jewish communities of New York, will be held outside United Nations Headquarters after the General Assembly starts.

"It is important to us to take part in the rally, and we will be together on the dais to transmit the message to the world's leaders that our sons have not yet come home, despite many promises," Shlomo Goldwasser, Udi's father, told Haaretz. He said the Foreign Ministry had arranged for the families to meet with a number of officials at the UN, including UN Secretary General Kofi Annan. He said they had no mandate to negotiate, but would not rule out direct approaches to Arab leaders at the UN.