Israel must avoid all steps that would impede efforts to bring peace, Egyptian President Hosni Mubarak said Thursday during a joint press conference with Prime Minister Ehud Olmert in Sharm el-Sheikh.

Mubarak opened his meeting with Olmert by condemning an Israel Defense Forces raid in Ramallah earlier in the day in which at foure Palestinians were killed and 20 others wounded.

"Israel's security cannot be achieved through military force but by serious endeavors toward peace," the state-run MENA news agency quoted Mubarak as telling Olmert during their meeting in this Red Sea resort.

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Mubarak called for "the immediate halt of all acts of violence and any
practices that will impede efforts" to bring peace, MENA said.

Olmert responded to Egypt's condemnation by apologizing if civilians were caught in the crossfire, but defended Israel's incursion as an operation aimed at stopping terrorists responsible for the death of Israeli citizens.

Mubarak also said during the press conference that Egypt was doing its best to halt the smuggling of weapons into the Gaza Strip.

"We are doing our utmost to prevent smuggling of weapons, but no country is 100 percent capable of stopping it," Mubarak told reporters.

Reacting to calls from Olmert to prevent funds from being smuggled to the Hamas-led Palestinian government, Mubarak said that according to Egyptian law such transfer was legal as long as the cash was declared.

"We don't allow money carried by Palestinians to be smuggled, but Egyptian law allows the passage of money as long as it is declared," said Mubarak.

The Egyptian leader added that his government would not spare any effort to facilitate the exchange of information with Israel.

During their meeting, the two leaders also discussed the possibility of holding a joint meeting with Palestinian leaders to discuss the Middle East peace process.

"We are ready at any time to meet with Abu Mazen [Mahmoud Abbas) and have real negotiations and have an atmosphere for peace," Olmert said, adding that Abbas was a "partner for peace," Hamas leader Khaled Mashal was not.

Mubarak shot back, that not everyone in Egypt supported its peace agreement with Israel, but that did not stop it from signing a peace treaty with Israel.

The two leaders were expected to discuss plans to release hundreds of Palestinians jailed in Israel in exchange for IDF soldier Gilad Shalit, who has been held captive by Palestinian militants since his abduction in June.

Egypt on Thursday blamed what it called Palestinian indecision for a lack of apparent progress towards the prisoner swap deal which would free Shalit.

Egypt has been trying to mediate an exchange since Shalit was captured.

Egyptian Foreign Minister Ahmed Aboul Gheit told Reuters: "They [the Palestinians] are the ones holding the Israeli soldier. Israel wants this soldier. Israel is offering some measures. What is needed today is for the Palestinian side ... to decide."

"There is no development on this issue [the prisoner exchange]. What is being offered is an exchange deal, but unfortunately there are some Palestinian powers who think that the situation is not yet ready for this exchange."

But Palestinian Prime Minister Ismail Haniyeh, speaking in Gaza, said there was "substantial progress" in Shalit's case.

"The Israelis used to refuse reciprocity and now they agree. They used to refuse simultaneous [prisoner exchanges] and now they agree. They used to refuse to talk about numbers and now they agree," Haniyeh said.

Four-way summit
Mubarak and Olmert's meeting was expected to touch on the Shalit deal, as well as diplomatic initiatives. Egypt has already floated the possibility of holding a regional summit with the participation of the leaders of Jordan and the Palestinian Authority.

The Prime Minister's Office said that it views this idea favorably.

"We have no fundamental problem with a summit, and if they raise the idea during the Olmert-Mubarak meeting, we will discuss it and consider it," a source in the Prime Minister's office told Haaretz on Wednesday night.

The Olmert-Mubarak metting is taking place at a time when ties between the two countries have grown warmer following the prime minister's meeting with PA Chairman Mahmoud Abbas on December 16 in Jerusalem. Egypt sees itself an important partner in the Israeli-Palestinian peace process, and it considers the idea of a summit meeting a good opportunity for furthering the diplomatic process.

Mubarak hosted a summit at Sharm al-Sheikh two years ago that was attended by Abbas and then prime minister Ariel Sharon.

A spokesman for Mubarak, Suleiman Awad, said Wednesday the summit would to help break the impasse in the diplomatic process between Israel and the PA. Egyptian sources also told the Saudi Arabian daily Al-Watan that a four-party summit would offer new ideas for reviving negotiations on a permanent Israeli-Palestinian settlement and achieving a formula that would ensure the establishment of a Palestinian state.

U.S. Secretary of State Condoleezza Rice is due to visit the region soon for talks with all parties on resuming Israeli-Palestinian negotiations.

Thursday's meeting is the second between Olmert and Mubarak since the prime minister was elected last year. Olmert intends to use it to raise three main issues: increased Egyptian supervision of the border between Sinai and the Gaza Strip; the establishment of a "regional support network" for Abbas and the diplomatic process; and the Israeli-Palestinian prisoner exchange that Egypt has been mediating, in which abducted Israel Defense Soldier Gilad Shalit would be released.

The Egyptian daily Al-Ahram reported Wednesday that Mubarak plans to raise the issue of Israel's planned transfer of $100 million to the PA, something that Olmert promised Abbas during their meeting. Mubarak will also ask Olmert to expand the Israeli-Palestinian cease-fire, currently confined to the Gaza Strip, to the West Bank as well.

Hamas: Ready to swap video of Shalit for prisoners' release
A senior Hamas official said Thursday his group was ready to give Israel a videotape of captured Israel Defense Forces soldier Gilad Shalit, if it agrees to release Palestinian women prisoners and other detainees.

Haaretz reported earlier this week that Hamas would hand over a video proving that Shalit is alive, the first such indication since his capture by Hamas-linked gunmen on June 25, in return for the release of Palestinian women and minors held in Israeli jails.

Moussa Abu Marzouk, deputy head of Hamas' political bureau in Damascus, said Thursday that Shalit is alive.

He said Hamas was willing to trade the videotape for the freedom of "Palestinian women and a considerable number of detainees," but did not name a figure.

Abu Marzuk said the demand was "modest in light of the high price Palestinian people have paid and the collective punishment they have faced by Israel following the capture of the soldier."