Egypt and Hamas have deadlocked in their negotiations over terms for freeing kidnapped Israeli soldier Gilad Shalit, Palestinian sources said yesterday.

They said that Egypt blamed Khaled Meshal, the head of Hamas's political bureau in Damascus, for thwarting a deal.

Egypt has reportedly demanded that Hamas stop blocking the deal and immediately release the Israeli soldier. The Associated Press, quoting Palestinian officials, said that the Egyptian demand came in a "strongly worded letter" to Meshal from Egypt's powerful intelligence chief, Omar Suleiman.

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Suleiman reportedly demanded that Shalit be freed by the end of Ramadan (October 23), warning that otherwise, Hamas would bear responsibility for a large Israeli military operation in the Gaza Strip. He also demanded that Meshal cooperate fully in forming a Palestinian unity government. Egypt has not denied this report.

Palestinian sources said that Suleiman's letter was leaked because of the tension between Egypt and Hamas. A source close to Meshal said: "The leadership has received the Egyptian letter and is studying it."

Suleiman is involved in various mediation efforts in the Palestinian Authority, and some of his aides are conducting the talks over Shalit.

Meanwhile, Israel released Palestinian Deputy Prime Minister Nasser al-Shaer, a top Hamas official, yesterday, after more than a month of detention.

A military tribunal in Petah Tikva ruled that there was insufficient evidence to either continue holding Shaer or indict him, his lawyer, Osama al-Saadi, told Haaretz.

Shaer was already on his way back to his home in Nablus, Saadi said.

Shaer, who is also the Palestinian education minister, was arrested on August 19 in Ramallah. The army announced at the time that he was arrested because he was a key Hamas activist.