Hamas said Wednesday that a prisoner swap deal for the release of captured Israel Defense Forces soldier Gilad Shalit was "doomed to fail," if Israel demanded that militants with "blood on their hands" be dropped from the Palestinians' list.

"The Palestinians will not revise the list based on Israeli criteria," Palestinian cabinet spokesman Ghazi Hamad said, though he did add, "If there are issues that [need] more negotiations, then things are not over yet."

According to Hamas, Israel's reaction "proves [it] is not interested in achieving a compromise over the release of prisoners."

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An announcement released by the Prime Minister's Office on Tuesday stated that during a security consultation "disappointment and reservations were expressed over the list of prisoners whose release Hamas is seeking. Israel will continue contacts with Egypt on the issue."

Defense establishment sources said that Hamas' list of prisoners "appears unacceptable" due to the inclusion of senior terrorists convicted of the murder of Israelis.

The statement said Prime Minister Ehud Olmert convened a meeting of senior officials and intelligence commanders Tuesday afternoon to discuss the list, and expressed disappointment and reservations. It also said there has been some progress in negotiations, but the road to completion is still long.

Olmert imposed a blackout on the contents of the discussion itself among the highest ranks of the Defense Ministry. The announcement further stated: "Our hearts are with the Shalit family, which has been steadfast in recent months especially in the face of recent reports on this issue, which certainly do not lessen its continued suffering."

At this point, it appears the sides are close to agreement on the stages of the deal and the number of prisoners - probably 1,400. However, the actual composition of the list is expected to be a key obstacle that could take several more weeks.

In recent days, it has been suggested the cabinet will create a special ministerial committee to prepare the prisoner list, as was done in previous prisoner swaps. However, last night the Prime Minister's Office said that no such committee is on the agenda.

There has been an active discussion of the release of Fatah leader Marwan Bargouti, also on the list, in the defense establishment for years. Several senior officials support his release. However, since his name appears alongside several prominent Hamas terrorists and PFLP leader Ahmed Saadat, accused of involvement in the assassination of Rehavam Zeevi, his release seems unlikely.

Israel also faces difficulties in maneuvering between Palestinian Authority Chairman Mahmoud Abbas and Hamas. Olmert has said several times in the past that he would support gestures, including a prisoner release, to bolster Abbas' standing. But if Israel releases many Fatah militants at the expense of Hamas men, Hamas - whose members are holding Shalit - could scuttle the deal.

Despite these reservations, the fact that a list was submitted is considered progress in the talks, which had been deadlocked. In Tuesday's discussion, the concept of modifying the criteria for release to include a limited number of prisoners with "blood on their hands", was also raised.

Hamas prisoner list contains 17 Israeli Arabs
The prisoner list that Hamas has sent to Israel as part of talks for the release of kidnapped soldier Gilad Shalit includes 17 men and women security prisoners who are Israeli citizens.

Israeli Arabs involved in the talks on behalf of security prisoners and their families told Haaretz that the list includes six convicted women security prisoners who are Israeli citizens, and two others in custody until the end of proceedings against them, which are still underway.

Among the women prisoners on the list are Lina Jarbuni, 32, from Arabeh, sentenced to a 17-year prison term in 2004 for aiding an Islamic Jihad cell from Jenin to carry out attacks on Israel. Also on the list is Varda Bakrawi, also from Arabeh, who was sentenced to nine years, and Tajrid Said, 25, from Sakhnin, who is sentenced to six years for aiding the Tanzim and conspiracy to commit terror attacks. It also includes Suad Naif Abu Hmad, 27, from Nazareth, who was sentenced to five years for contact with a foreign agent and planning a suicide bombing.

The two prisoners still awaiting sentencing are Warud Sasem, from Tira, accused of contact with activists from the military wing of Fatah, and Faiza Fudi from Acre, accused of contact with Islamic Jihad operatives. Both have been in prison for a few months.

All six were arrested for crimes carried out after the outbreak of the second intifada in 2000.

Also on the list are prisoners who received life sentences before the Oslo Accords, most of whom have already served 20 years or more. Among the most veteran are Sami Yunis, 77, from Arara, and Safi Mansur, 72, from Tira.

The Association for the Prisoner says the issue is very sensitive and they would would not like to see the names published.

"The families want to see all the prisoners out of jail, and therefore the fact that not all of them are on the list is a cause of discomfort," said Munir Mansur, a leading activist. According to Mansur, the association had no influence on the makeup of the final list. "The kidnappers set the list according to their criteria."

Mansur said the prisoners and their families were tense, but that expectations should not be raised. "It is known that Israel has veto power over the names of its citizens who are prisoners. This is after all a list of demands by the Palestinians and there's no certainty Israel will agree to it. We hope the Palestinians will stick to the demands and the criteria that were decided," Mansur said.

Sana Duka, from Baka al-Garbiyeh, is the wife of a security prisoner sentenced to life in 1985 and is serving his sentence in the Sharon Prison. "From our point of view this is the only window of hope, and if the prisoners are not released, especially the veteran ones who are serving more than 20 years, it will be no less than a crime," she told Haaretz. "These are prisoners who were sentenced before Oslo, and must not be abandoned."

Doka's husband was sentenced for belonging to a cell of the Popular Front and was an accomplice in the murder of policeman Moshe Tamam.

Sources at the Association for the Prisoner do not deny that they have appealed through the media to Hezbollah leader Hassan Nasrallah to include Israeli security prisoners in the list of those whose release is being demanded in exchange for information about kidnapped soldiers Eldad Regev and Ehud Goldwasser.