On July 12, 2006, just hours after reservists Eldad Regev and Ehud Goldwasser were kidnapped in a cross-border Hizbullah raid, the guerrilla group's leader, Sheikh Hassan Nasrallah, went live on Al Manar TV to address Israel. "First, thank God for the victory, the jihad and the results," he said. "Today is a day of loyalty to Samir Kuntar and the rest of the Lebanese prisoners in Israel." Gloating in his initial operational success, Nasrallah said that Regev and Goldwasser were in a "secure faraway place," and would only be released in a prisoner swap that included all the Lebanese prisoners and thousands of Palestinian ones in Israel. He continued to link any prisoner deal to the release of Gilad Schalit, who had been kidnapped two weeks earlier by Hamas. At the time of Regev's and Goldwasser's kidnapping - before Israel launched its month-long war against Hizbullah - the understanding within the Israeli intelligence community was that Nasrallah was vying to position himself as a pan-Arab leader, and that by linking Schalit's abduction to the July 12 attack, he was also trying to assume a leading role on the Palestinian issue. Nasrallah was understood to have initially hoped that Hizbullah's kidnapping attack would bring about the release of Jordanian, Egyptian, Syrian, Lebanese and Palestinian prisoners. The thought of pictures of him flanked by Kuntar and jailed Palestinian Tanzim leader Marwan Barghouti increased his zeal. This week, Nasrallah appeared to have given up on his dream. The report that emerged from Lebanon on Monday - and received the quiet confirmation of Israeli officials - was that significant progress had been made in the negotiations for Regev's and Goldwasser's release, but that Israel's offer only included Lebanese prisoners. According to the proposal, Israel would release four Hizbullah fighters captured during the war, the bodies of 10 fighters, and Kuntar, who has been in prison since 1979, when he led a terrorist attack in Nahariya in which policeman Eliahu Shahar, Danny Haran and his two young daughters were killed. Nasrallah seemed to confirm that the format of such a deal was close to being reached when, on Monday night, he said again that Kuntar and his "Lebanese brothers" would soon be home. Several weeks ago, Ofer Dekel, the former deputy head of the Shin Bet (Israel Security Agency) who was charged by Prime Minister Ehud Olmert to negotiate the release of the kidnapped soldiers, met with the German mediator, Gerhard Konrad. The offer that emerged explicitly stated that only Lebanese prisoners would be released - and no Palestinians. THIS HAS not always been Israeli policy. In 2004, for example, Israel released 400 Palestinian prisoners, along with 30 Lebanese and other Arab prisoners - and maps of mine fields - in exchange for the bodies of three soldiers kidnapped by Hizbullah in October 2000, and shady businessman Elhanan Tannenbaum. In 1985, Israel released 1,500 Palestinian prisoners - in what came to be known as the "Jibril deal" - in exchange for three soldiers who were being held captive in Lebanon by Ahmed Jibril's Popular Front for the Liberation of Palestine. The Jibril deal is still considered extremely controversial, since, while Israel retrieved its missing soldiers, among the Palestinian prisoners released were some of the future leaders of the first and second intifadas, including Sheikh Ahmed Yassin, the spiritual founding father of Hamas. This time, Israel made a strategic decision not to include Palestinians, mainly due to the pessimism within the defense establishment as to the chances that Regev and Goldwasser are alive. In the past, in exchange for live captives - like Tannenbaum and those returned in the Jibril deal - Israel paid with hundreds of prisoners. This pessimistic assessment is based on intelligence information, as well as an IDF chief medical officer's report - revealed after the war - which concluded that both Regev and Goldwasser were seriously wounded during the kidnapping and would have required immediate medical care to have survived. YA'ACOV PERI understands very well what the Regev and Goldwasser families are going through. In 2000, after the Mount Dov kidnapping attack, Peri - a former director of the Shin Bet - was appointed by then-prime minister Ehud Barak to conduct the negotiations with Hizbullah on Israel's behalf. In a talk with The Jerusalem Post this week, Peri - today chairman of the Board of Directors of Bank Mizrahi - recalled the difficulties in conducting prisoner negotiations with Hizbullah. His job, he said, was similar to that of Dekel today - coordinating with the IDF, Shin Bet and Mossad, and relaying messages back and forth between Jerusalem and Beirut. His team was made up of eight security officials from the various agencies. Today, he says, Dekel works with a smaller group. "These are very difficult negotiations," Peri said. "You need to be very discreet and sensitive to the families, and this is all while the other side does not want anything published about the talks." Israel, Peri said, did not know for certain the fate of the three soldiers abducted in 2000 until very close to the prisoner exchange four years later. "Hizbullah never tells what the status of the soldiers is," he said. "Usually we know toward the last stage, although there were assessments then like there are today." As was the case with the 2004 deal, today Germany is also the primary facilitator and mediator. Peri recalled dozens of meetings in France and Germany with different mediators in bids to obtain information. Between 2000 and 2004, Ernst Uhrlau - then coordinator of the intelligence community in the Chancellor's Office - was the mediator between Israel and Hizbullah. In December 2005, he was appointed head of the BND, Germany's equivalent of the CIA and the Mossad. Today, he is still involved behind the scenes, while one of his men - Gerhard Konrad - is leading the mediation. Germany's role as a mediator - which began in the early 1990s under the leadership of former chancellor Helmut Kohl with missing IAF navigator Ron Arad - stems not just from humanitarian motives, officials said, but also is part of Germany's interest in establishing itself as a strategic player in the Middle East. According to Rami Igra, the former head of the MIA department in the Mossad, Germany established strong ties with the Shi'ite leadership in Iran when it continued doing business with Teheran despite embargoes imposed by other countries. One example is the nuclear reactor in Busher, which was built by Siemens, a German company. "Hizbullah is a proxy of Iran, and as its puppet, the moment the boss thinks someone is okay, the proxy does, too," Igra explained. Nasrallah's decision to give in to the Israeli demand to keep the swap strictly Lebanese had to do with the historic compromise reached last week in Doha, which lifted the almost two years of paralysis over Lebanon, and gave Hizbullah veto power in the cabinet. By reaching a deal in the coming months, Nasrallah will be able to show - from his new position in the government - that he is the true leader of Lebanon, and that only he has the ability to bring Lebanese imprisoned in Israel back to their homes.