Egypt and Israel are working on a deal to swap an Israeli man, held in Cairo on spying charges, for 81 Egyptian prisoners held by Israel, the independent newspaper Al Masry Al Youm reported in Cairo on Thursday.

"The deal has already reached an advanced stage," the paper said, quoting what it called "well-informed Egyptian sources."

Ilan Grapel, 27, was arrested in Cairo in June on suspicion of spying for Israel's external intelligence agency, Mossad.

The deal is separate from that concluded between Israel and the radical Hamas movement that runs the Gaza Strip to swap Israeli soldier Gilad Shalit for 1,027 Palestinian prisoners.

Commenting on both deals, along with Israel's official apology to Cairo for the killing of five Egyptian soldiers near the border in August, Egypt's former ambassador to Israel, Mohamed Assem, said these reflected "Egypt's calm diplomacy."

Egypt was the first Arab country to sign a peace treaty with Israel in 1979, but relations have suffered their worst crisis in August.

On Tuesday, both Israel and Hamas confirmed that a deal that would set Shalit free has indeed been sealed, due to release the IDF soldier who has been held captive by Hamas in the Gaza Strip since 2006.