Jerusalem is optimistic that two Israelis currently being held in Egypt will be released shortly. According to political sources, the recent improvement in ties with Egypt and the completion of the deal for Gilad Shalit have increased the chances of the return to Israel of Ilan Grapel and Ouda Tarabin.

Grapel, who holds dual U.S.-Israeli citizenship, has been held in Egypt since June 12. After being initially accused of spying, he was later charged with incitement, rebellion and damaging public buildings during the country's revolution this past winter. The U.S. government has been pressuring Cairo to release him, but to no avail.

Tarabin, a Bedouin, was arrested in Egypt 11 years ago when he went to El Arish to visit his sister, and was charged with spying. Israeli Embassy officials have been visiting him regularly and had raised his case several times with former President Hosni Mubarak and other officials of the previous regime, but with no result.

The Egyptian newspaper, Al-Ahram, reported on Sunday that Israel was prepared to release 81 Egyptian nationals being held in Israel in exchange for the two. According to the report, most of these prisoners are Bedouin accused of crimes and not security offenses. The crimes include murder, attempted infiltrations, and the smuggling of drugs, women or weapons.

Almost half of these prisoners are still being questioned, while the rest have been tried and sentenced to terms ranging from two to 20 years.

A diplomatic source said the positive atmosphere generated by Egypt's help in brokering the Shalit deal, together with Defense Minister Ehud Barak's apology for the killing of five Egyptian soldiers during the terror attack on the southern border last month, had provided a window of opportunity to secure the release of the two Israelis.

"There won't be another opportunity," the source said. "We have to take advantage of the new situation to clear the table between Israel and Egypt on this matter. It's clear to everyone that we have to do this now."

Diplomatic sources said that the moves to get Grapel and Tarabin released were the third part of a comprehensive effort to resolve the tensions between Egypt and Israel.

These sources said the next step was likely to be returning Israel's ambassador to Cairo after an absence of over a month.