Palestinian media reported Sunday that Prime Minister Ehud Olmert and Egyptian President Hosni Mubarak are set to announce an agreement on the release of Gilad Shalit, during their meeting this coming Thursday.

Palestinian sources said earlier Sunday that Israel and Hamas have agreed on the details of a deal that will see the release of the kidnapped Israel Defense Forces soldier, who was snatched from his base near the Gaza Strip on June 25.

Meanwhile, Olmert called Palestinian Authority Chairman Mahmoud Abbas on Sunday in order to wish him a happy new year and Eid Al-Adha. According to the Prime Minister's Office, the two agreed to advance in the coming days the implementation of steps they agreed on in their meeting nine days ago.

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During their meeting the two discussed the removal of West Bank roadblocks, as well as Abbas' request that Israel release Palestinian prisoners prior to an agreement involving Shalit.

Under the terms of the reported prisoner exchange deal, Hamas will hand over to Israel a videotape showing Shalit alive, and in return Israel will release a small number of prisoners in its jails.

According to a Palestinian source, in the second stage of the deal Shalit will be handed over to the Egyptians, and then will be transferred to Israel. At the same time, 450 Palestinian prisoners will be released by Israel.

Hamas will present Egypt with a list of all the prisoners whose release it will seek and ask for Israel's authorization. Two months later, Israel will free another group of prisoners, the size of which and those included will be decided in Jerusalem.

Israel has promised to be "generous" on this issue, the source said.

But uncertainty marred the reports of a breakthrough Sunday afternoon, as the PMO denied having any knowledge of such drastic developments in the affair.

A government official said progress was steady rather than dramatic. "Nothing's going to happen overnight," the official said.

Skepticism relating to Shalit's release was also expressed by senior Palestinian negotiator Saeb Erekat, who said he has not been notified of such progress on Shalit's release, according to Israel Radio.

Hamas: We expect declaration of deal soon
Hamas spokesman Ismail Radwan, however, told Associated Press Television that there has been progress in the contacts.

"We expect a declaration of a complete deal of releasing Palestinian prisoners for the imprisoned Zionist soldier soon. But this all depends on the Israeli side," he said. "We hope that the results of this deal will be soon, God willing."

A spokesman for the Palestinian Resistance Committee's, Abu Mujhad, told Haaretz a breakthrough has indeed been achieved in the talks on Shalit's release.

He refused to offer details but did confirm that Israel made substantial progress in agreeing to the demands made by Palestinian organizations.

A senior Hamas official told Haaretz that members of the group in the territories were informed that there would be good news coming soon, although they had not been given any details.

Earlier Sunday, the spokesman of the military wing of Hamas said that there has been a "substantial breakthrough" in contacts toward Shalit's release, and that a prisoner exchange deal could be clinched soon.

"If the matters continue to progress in the channel in which they are currently progressing, I foresee a rapid deal, and in the very short term," Abu Abeida said in an interview to Israel Radio.

Shalit was captured on June 25, as part of a joint Palestinian raid, during which Hamas and other armed groups used a tunnel to cross under the Gaza border fence and attack an IDF position inside Israeli territory.

The radio reported Sunday that Egyptian Foreign Minister Ahmed Abu al-Gheit told the London-based Al-Hayat newspaper that a deal is effectively ready, and only awaits Palestinian Authority approval.

Abu Abeida denied a report that Hamas had backed down from its demands that Israel release a total of 1,400 prisoners in exchange for the soldier, and would demand only 500.

"Our demands are as before," he said, adding that the report, from a Saudi newspaper, quoting PA Prime Minister Ismail Haniyeh and Foreign Minister Mahmoud Zahar, were inaccurate.

"We are demanding the release of 1,000 prisoners, in addition to 400 women and minors," adding that the 500 figure apparently referred only to the number of prisoners to be freed in a first phase of the deal, the Hamas spokesman said.

Gilad Shalit's father publishes letter to his son's captors
On Friday, Noam Shalit, Gilad Shalit's father, published an open letter in the Palestinian daily Al Quds, appealing to his son's captors.

The letter opens: "We in the family, your mother, your father, Hadas and Yoel, hope you feel well and are managing despite the tough conditions, the winter and the difficult situation you have been in for over six months. My Gilad, we miss you very, very much and want to see you
with us and hug you tight, and so does the whole family and all your friends from school. We hope it will be very soon."

Al Quds is published in East Jerusalem and widely distributed in the West Bank and the Gaza Strip. The letter to Gilad Shalit appeared at the top of page 2 with an item on page 1 directing readers to it.

Al Quds wrote that the letter had been published by the parents of the kidnapped soldier in the hope that his captors would let him read it.

Noam Shalit added "the fact that we don't know how you are, how you feel, how you are making it through the winter, and how the Palestinian organizations holding you are treating you, is very hard for us. They declare that you are a prisoner of war, but unfortunately, they are
preventing you from receiving the rights to which you are entitled as a prisoner of war according to international law, and also according to the exalted Islamic law."

Noam Shalit also quoted verses from the Koran on the proper treatment of prisoners.