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Defense Minister Ehud Barak on Monday said that recent threats by Hezbollah must be taken seriously, referring to intelligence warnings of attacks by the Lebanese guerilla group to avenge its slain deputy leader Imad Mughniyah.

Barak's comments came as Hezbollah was scheduled to hold a formal service to commemorate 40 days since Mughniyah's death to be attended by the organization's leader, Hassan Nasrallah, who was expected to make a speech at the service.

Hezbollah has announced since then that it regarded Israel responsible for Mughniyah's death, although Jerusalem has denied any connection to the Damascus assassination.

Barak added that the security establishment and the intelligence establishment are prepared and ready. "We are really in a more sensitive period and there are certain dangers, but we will get through them," he said.

Speaking at a site near Kiryat Gat, The defense minister also referred to the Yemini-sponsored reconciliation efforts between Fatah and Hamas.

"I don't think that anything happened in Yemen that demands a response from us. Our position toward Hamas is well known, we are not speaking with them and have no intention to speak with them - except through indirect contacts in connection to the kidnapped soldier Gilad Shalit," Barak stated, speaking of the Israel Defense Forces abducted by Gaza militants in a cross-border raid in June 2006.

Barak also said Israel will begin making life easier for West Bank Palestinians but will not remove checkpoints in the immediate future. He said Israel is working on making crossing through checkpoints easier.

The defense minister pointed to new industrial zones he said Israel was facilitating, aimed at creating thousands of jobs for Palestinians.

Israel shifts stance on Hezbollah deal over abductees

Meanwhile, a source in the defense establishment recently told Haaretz. that Israel has lifted its opposition to a deal with Hezbollah involving the release of Palestinian prisoners in exchange for signs of life from abducted soldiers Eldad Regev and Ehud Goldwasser,

This source and other officials told Haaretz that indirect negotiations for the release of the two Israel Defense Forces soldiers that the Shi'ite organization abducted in July 2006 did not bog down after the assassination of Mughniyah last month in Damascus.

On Friday, Hezbollah deputy secretary general Naim Qassem again accused Israel of culpability for Mughniyah's assassination in a speech to mark the birthday of the Prophet Mohammed. "We have clear proof, 100 percent, that cannot be doubted, that Israel is the head of the assassination," said Qassem.

The talks regarding Regev and Goldwasser, these sources said, are conducted by a German secret service official under United Nations auspices, but are yielding little progress.

Negotiations with Hamas for the release of Gilad Shalit, another IDF soldier captured in 2006, are not progressing, the sources added, citing internal differences within Hamas.

So far, Israel has said that it was categorically opposed to Hezbollah's demand to include Palestinian prisoners in any deal.

Official assessments allege that the two soldiers were "severely wounded" during the attack that ended with their abduction and the slaying of three other IDF troops. The official working assumption, however, is that the two soldiers are alive.

Hezbollah is refusing to release any sign of life from the two soldiers, preconditioning such a move on the release of Palestinian prisoners. Both sides are reportedly exchanging ideas for the deal, but the transaction is allegedly stuck because of intransigence on the part of Hezbollah's men vis-a-vis the demand to release Palestinians from Israeli prisons.

Turning to the negotiations for Shalit's release, the sources said the talks are being held up by exiled Hamas leader Khaled Meshal. They said Israel has for the past 30 days been expecting to receive a list of prisoners whose release the organization said it is seeking.

Until earlier this month, the proposed agreement with Hamas for Shalit's release was supposed to contain three main phases. During the first, Shalit was to be transferred to Egyptian custody, after which Israel was supposed to release 100 so-called "prominent prisoners," a group of Palestinian legislators from Hamas, as well as minors and women imprisoned in Israel.

In the second phase, Shalit was to be handed over to Israel and, at the same time, 350 Hamas prisoners were to be freed from prison. During the third part, which had no exact timeframe, Israel was to release 500 additional prisoners.

But the exact makeup of the list of prisoners whose release Hamas is demanding is, in the opinion of Israeli experts, the subject of an internal conflict within the organization.

The two sides in the conflict are reportedly Meshal and the exiled leadership in Syria on one hand, and the internal leadership within the Strip, headed by Ahmed Jabri from the organization's military wing, Iz al-Din al-Qassam. Talks with Hamas over the exchange are also conducted indirectly, through the mediation of Egyptian Intelligence Minister Omar Suleiman. Representing the Israeli side is Ofer Dekel.

The sources allege that the Egyptian agenda also serves to slow the talks down. Egypt, they explain, favors focusing on reaching a cease-fire deal between Israel and Hamas, and only then addressing the deal for Shalit's release.