The Monday meeting between Olmert and Ofer Dekel, former Shin Bet head and Olmert's representative on the issue of prisoner release, concluded with disillusionment from Sunday's careful optimism. In contrast to reports in the Arab media, the negotiations on kidnapped IDF soldier Cpl. Gilad Shalit's release are at a stalemate, mainly because of Hamas's high demands. Olmert and other officials attending the meeting said that the number of prisoners Hamas demanded - 1,500 - is disproportionate.
Earlier Monday reports in the Arab media were optimistic, indicating the deal would be concluded before the end of the week. Israel Radio quoted the London-based Arabic paper Asharq Alawsat, as saying the prisoner exchange will happen in three stages.
In the first stage, Israel would reportedly release 450 women and minors, in exchange for proof that Shalit is alive.
In the second stage Shalit would be returned to Israel and Israel would release 450 prisoners whose identity would be chosen by Shalit's captors.
Two months after the release of Shalit, Israel would release another group of prisoners whose identity would be determined by the government.
The Saudi newspaper Al Watan reported that Israel will include Tanzim leader Marwan Barghouti and leading PFLP operative, Ahmed Sa'adat, who was among the assassins of former Tourism Minister Rehavam Ze'evi in 2001.
The Hamas leadership did not issue a response to the offer, but according to Al Watan the leadership of Hamas would probably accept the offer. Hamas's official answer is set to be announced at a Thursday summit between Prime Minister Ehud Olmert and Egyptian President Hosni Mubarak.
On Sunday the political advisor of Palestinian Authority Prime Minister Ismail Haniyeh said that Israel would release a total of 1,400 prisoners to retrieve Shalit.
The Palestinian optimism of Monday morning echoed similar sentiments expressed in the Israeli press on Sunday. Reports that a videotape of the soldier was delivered to Israel were published. These, however, were denied by Israel and the Shalit family.
But diplomatic sources downplayed the reports, saying there had been no major breakthrough and that the recent barrage of optimistic statements coming from PA Prime Minister Ismail Haniyeh were meant for domestic Palestinian consumption.
According to these sources, the Palestinian street wants to see action on the release of Palestinian prisoners, and Hamas was trying to place the responsibility for the fact that it has taken so long to secure a prisoner swap on Israel.
Noam Shalit, Gilad's father, denied the possibility that either a deal had been struck for his son's release or that such an agreement was pending.
"None of it is true," he told The Jerusalem Post Sunday night. Shalit added that contrary to media reports during the day, he had not received a videotape that showed that his son was alive.
Shalit said he had gotten used to these "virtual" stories during the six months since his son's kidnapping on June 25. "I've learned not to react too quickly," he added.
Nevertheless, senior defense officials said there had been "major progress" in the negotiations, and that the soldier's release was imminent.
"We cannot yet say when Shalit will come home but it looks like if things continue to progress positively, it will happen in the near future," one official said.
According to the official, Egyptian mediators had "expressed optimism" in their reports to Israel, while predicting that a deal would be reached in the coming week. The official said that a prisoner swap involving Shalit would be the focus of talks between Olmert and Mubarak during a meeting the two have planned for Thursday in Sharm e-Sheikh.
Egyptian Intelligence chief Omar Suleiman has been mediating negotiations between Israel and Hamas.
On Saturday, Haniyeh met with Suleiman in Saudi Arabia. In an interview he gave a Saudi newspaper, Haniyeh said he was updated by Suleiman that a "good formula" had been reached concerning the number of prisoners Israel would release in exchange for Shalit.
Hamas spokesman Ismail Radwan told Associated Press Television that there had been progress in the contacts.
"We expect a declaration of a complete deal of releasing Palestinian prisoners for the imprisoned Zionist soldier soon. But this all depends on the Israeli side," he said. "We hope that the results of this deal will be soon, God willing."
But Palestinian negotiator Saeb Erekat, who is close to PA Chairman Mahmoud Abbas, denied the report of a breakthrough.
"I wouldn't say that no progress has been made at all, but the deal is still far away," he told the AP, counseling patience. "They are still far away from reaching an exact number of prisoners, and we urge everybody not to interfere with the Egyptians' work. "
Over the last six months there have been numerous reports of an "imminent" deal, none of which materialized.
Olmert, meanwhile, phoned Abbas Sunday to wish him holiday greetings. According to a statement issued by Olmert's office, the two men agreed to push forward in the next couple of days the issues they discussed at their meeting last Saturday night.
Among the issues they discussed were the transferring of $100 million in frozen PA tax revenue held by Israel, the lifting of roadblocks and the release of prisoners.
Although Olmert signaled that he might release some prisoners before the current Id al-Adha holiday, it was later decided that a prisoner release before Shalit was freed would send the wrong signal to the Palestinians.
AP contributed to this report.