Defense Minister Amir Peretz said Sunday that Israel was holding secret contacts toward winning the release of kidnapped IDF soldiers.

IDF Corporal Gilad Shalit has been held by Hamas and other groups since his capture in late June. In July, Hezbollah forces along the Israel-Lebanon border seized IDF Master Sergeant Ehud Goldwasser and First Sergeant Eldad Regev.

Israeli security sources confirmed over the weeked that some progress had been made toward a prisoner swap for the release of Corporal Gilad Shalit. But the defense establishment said a deal with Hamas, which is holding Shalit in cooperation with other organizations, had not yet been clinched and the soldier's release was not imminent.

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Addressing a memorial ceremony for fallen soldiers whose burial place is unknown, Peretz said that Israel will step up its contacts with the Palestinians, and that the government must act to support moderate Arab governments.

Peretz said the effort to secure the release of kidnapped IDF soldiers was a "sacred duty." He said that the contacts were being carried out in "determined and hidden ways."

The defense minister also responded to a recent statement by Jordan's King Abdullah, who urged a renewal of Israeli-Palestinian peace negotiations and a prompt solution to the conflict between the sides.

Peretz called the king's statement an "important appeal."

"Our war is not against the Palestinian people, but against terrorism," Peretz said.

Possible swap for Shalit takes shape
The Israeli negotiator for prisoners and missing soldiers, Ofer Dekel, was in Cairo more than a week ago and made progress in talks with senior Egyptian officials. Between 400 and 500 prisoners are to be exchanged for Shalit, according to a report on Channel 2 Friday.

Agreement also appears close on the structure of the swap, with groups of prisoners to be freed in exchange for Palestinian and Egyptian assurances of Shalit's release before his return to Israel, near the end of the process.

The identity of the prisoners to be released is still a matter of contention. Hamas wants a large number of senior figures freed, among them those serving sentences for the murder of Israelis.

Israeli sources close to the process said Egyptian pressure is having an effect on senior Hamas officials and that Hamas has shown "signs of pragmatism" in recent weeks with regard to Shalit's release.

Hamas apparently understands that progress toward the release will lead to a more favorable attitude on the part of the international community toward a Palestinian unity government, which will ease economic sanctions on the Palestinian Authority.

Israel believes pressure from the Egyptians and the Saudis is behind the direct appeal by Khaled Meshal, head of Hamas' political wing, to Shalit's father Noam Shalit. Speaking at a press conference in Cairo over the weekend, Meshal said: "As a father, I understand the pain. But the soldier's father must understand two truths: there are 11,000 prisoners in Israeli jails and two, the ball is in Israel's court and they are the only ones delaying the deal."

An Israeli government source said Israel was "sorry about the cynical use Khaled Meshal was trying to make of the Shalit family by appealing to them directly."

Noam Shalit responded Saturday to Meshal's call by saying: "I do not know how to relate to the statements, especially the one about the ball being in Israel's court. I am therefore approaching Israeli officials in the hope of understanding what is behind Meshal's statements," Shalit told Haaretz.

Meshal said he had reached a number of agreements with the Egyptians in Cairo toward freeing Shalit. A member of Hamas' political bureau, Iazat Risheq, said yesterday that Egypt had promised to work toward persuading the international community to lift economic sanctions from the new Palestinian government.