France and Germany are offering Hamas new incentives to free kidnapped soldier Gilad Schalit, Channel Two reported on Saturday.

As part of the initiative France and Germany are offering Hamas extra incentives in addition to the release of approximately 1,000 Palestinian prisoners. These incentives include easing restrictions on Gaza's border crossings as well as de facto recognition of the Hamas government in Gaza which would allow for European investment in the territory. France and Germany are working with Egypt on the deal, according to the report.

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The Israeli government refused to respond to the report.

On Friday, German Chancellor Angela Merkel and French President Nicolas Sarkozy called for the release of Schalit.

Merkel, speaking at a joint appearance with the French president called Schalit's release "a very important matter," ahead of the fifth anniversary of the IDF soldier's kidnapping by Hamas terrorists.

According to German government sources, there is a deal on the table in which Israel would release approximately 1,000 prisoners in exchange for Schalit. The deal was rejected by Hamas' armed wing, the Izzadin Kassam Brigades, despite approval by the groups political wing, according to German officials.

For France, the Schalit case is particularly sensitive because the captive soldier holds dual Israeli-French citizenship. French Foreign Minister Alain Juppe met with Schalit's parents, Noam and Aviva in Jerusalem during a visit to Jerusalem earlier this month.

Germany has mediated attempts to reach a deal between Hamas and Israel for several years.

Earlier in June, Noam and Aviva Schalit appealed to the French judicial system to hold Hamas, including its Damascus-based leader Khaled Mashaal, responsible for kidnapping their son Gilad and keeping him hostage in Gaza for the past five years.

If their legal effort in France is successful, arrest warrants could be issued against members of Hamas, including Mashaal. A suit can be filed in France due to Schalit's dual citizenship.

French law is applicable to anyone who is a French citizen, even if the criminal act against him occurred outside of France, explained an attorney for the Schalit family in Israel, Nick Kaufman.

Tovah Lazaroff and Ron Friedman contributed to this report.

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