Hamas turned down an Israeli offer to free between 900 and 1,000 Palestinian prisoners in exchange for captured Israel Defense Forces soldier Gilad Shalit, Egyptian Foreign Minister Ahmed Abul Gheit said yesterday.

"Egypt succeeded in securing a swap deal with Israel to free [Palestinian] women, children, elders and those who have been serving long prison terms in exchange for the soldier," Abul Gheit told Al Arabiya television. "A deal that could have guaranteed freeing 900-1,000 prisoners- but sadly they have decided to keep holding him [Shalit]," said Abul Gheit.

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The negotiations between Israel and Hamas on a potential prisoner exchange have so far failed to make progress on any of the major issues.

"It is obvious to both sides that there will be a prisoner exchange," sources close to the negotiations told Haaretz, "But there is no concrete understanding on how many prisoners will be released in exchange for Shalit, who they will be, and when.

"We have not even begun the real negotiations on implementing the deal, on the mechanism which will bring about the release of Shalit and the Palestinian prisoners," said the sources. "We are still at the stage [of discussing] principles."

Egypt is continuing its mediation efforts despite reports that it was no longer involved in the negotiations due to tensions between Hamas and the Egyptian government.

Also yesterday, Shalit's captors, the Hamas-linked Palestinian Resistance Committees, warned Israel against large-scale military action in the Gaza Strip.

"If the Zionist enemy decides to enter Gaza in a large-scale raid, the file of the soldier may be closed again," said Popular Resistance Committees spokesman Abu Mujahed.

"If they enter Gaza and kill people or even if they eliminate all Gazans, they will never regain their soldier," he said.

IDF Chief of Staff Dan Halutz told Israel Radio on Sunday that Israel is considering stepping up military operations in the Gaza Strip aimed at halting rocket fire on borderline Israeli communities, including "continued and deeper ground action."