Israel is waiting for Hamas to give it another list of Palestinian prisoners whom it would be willing to receive in exchange for kidnapped Israel Defense Forces soldier Gilad Shalit. The government ruled out releasing most of the 350 prisoners on the list Hamas gave it two months ago.

Israel gave the names of those whom it was prepared to free - apparently only a few dozen of the 350 - to an Egyptian mediator, but he has apparently not yet transferred it to Hamas.

According to a senior source involved in the mediation efforts, Israel did agree to release some Palestinians sentenced to life in prison, but only very few.

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Security sources told Haaretz the negotiations were currently on hold due to the escalation in fighting between Israel and Hamas. The Egyptian mediator is having trouble progressing with Hamas altogether, they said, in part because many of the organization's leaders have gone underground to avoid being targeted by the Israel Defense Forces.

However, the number of rocket launches at southern Israel from the Gaza Strip has declined sharply over the last few days, to a daily average of about five, and Hamas has ceased claiming responsibility for the launches.

The senior source involved in the negotiations said that even before the Israel-Hamas escalation began, the internal Palestinian clashes between Hamas and Fatah, coupled with Israel's refusal to release most of the people on Hamas' list, had effectively halted the talks on Shalit. However, he expressed hope that the talks would resume within the next two weeks.

While no new proposals have been put forth by either side, sources involved in the talks explained, both sides have a clear interest in advancing a deal, and they therefore believe negotiations will resume as soon as the Israel-Hamas fighting dies down. The sources stressed that an outline of the deal had already been agreed on: Initially, Israel will release 450 Palestinian prisoners in exchange for Shalit, and then, after Shalit is freed, Prime Minister Ehud Olmert is expected to announce the release of hundreds more, bringing the total freed to over 1,000. However, the second release will be presented as a gesture to Palestinian Authority Chairman Mahmoud Abbas rather than as part of the Shalit deal.

The key remaining dispute is over the identity of the prisoners to be released. Hamas' original list, which Israel received in early April, was defined by Israeli sources as "hard to swallow," inter alia because it included Hamas terrorists who were involved in major suicide bombings inside Israel after the intifada began in 2000. The government is considering rescinding its former blanket prohibition against releasing prisoners "with Israeli blood on their hands," but it is apparently not willing to free people involved in attacks during the past seven years.

The defense establishment believes Hamas' positions on this issue are being decided by Khaled Meshal, the Damascus-based head of its political bureau, and Meshal is apparently in no rush to pressure the heads of Hamas' military wing in Gaza to conclude a deal. Though two smaller organizations, the Popular Resistance Committees and the Army of Islam, were also involved in Shalit's kidnapping, Hamas is apparently the one that will determine the terms of the prisoner exchange.

Abu Mujhad, a spokesman for the Popular Resistance Committees, told Haaretz that the negotiations over Shalit were halted about six weeks ago over Israel's refusal to accept the list of candidates for release prepared by the three organizations holding the soldier. He denied that the freeze had anything to do with the internal Palestinian infighting. "If Israel agrees to the list we presented, the negotiations will conclude quickly," he said.

However, the internal tensions are likely to affect the contents of the list: The next version is expected to include many fewer prisoners from Fatah. Unlike in the past, representatives of the Palestinian prisoners themselves are having no luck in dictating the terms of a deal.

The talks over Shalit are being conducted completely independently of the talks with Hezbollah over the release of two other kidnapped soldiers, Udi Goldwasser and Eldad Regev. Those negotiations are taking place via a European mediator.

Meanwhile, a Hamas delegation is in Egypt now for talks on a cease-fire with Israel. The talks are being led by Egyptian intelligence chief Omar Suleiman, who is pushing such a deal. "The direction is positive," a senior Palestinian source involved in those talks told Haaretz.