Likud Chairman and opposition leader Benjamin Netanyahu said Tuesday that "releasing [Palestinaian] prisoners would send out a misleading message and undermine our efforts, and would harm our battle against terrorism."

Speaking before the Jewish Agency assembly, Netanyahu said that "the government must do all that it can to secure the release of the kidnapped soldier Gilad Shalit," but expressed his objection to the prisoner exchange deal proposed by Hamas, noting that "freeing terrorists would further weaken Abu-Mazen [Abbas] in the inter-Palestinian arena."

Addressing the issue of Qassam rocket fire on Sderot, Netanyahu said that Israel's central problem is "the collapse of deterrence," and suggested "changing the rules so that Hamas understands that they will pay a significantly heavier price."

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Netanyahu also said that he would not serve as finance minister in Prime Minister Ehud Olmet's government, and that the Likud would not join the coalition and would press for early elections.

Prime Minister Ehud Olmert said Monday that he would seek cabinet approval for the release of 250 Fatah prisoners held in Israeli jails, as part of a package of steps aimed at strengthening Palestinian Authority Chairman Mahmoud Abbas.

Speaking at the close of a four-way summit with Abbas, Egyptian President Hosni Mubarak and Jordan's King Abdullah II, Olmert said only prisoners who Israel does not hold directly responsible for deaths of its citizens would be released.

"As a gesture of goodwill toward the Palestinians, I will bring before the Israeli cabinet at its next meeting a proposal to free 250 Fatah prisoners who do not have blood on their hands, after they sign a commitment not to return to violence," Olmert said.