The security cabinet may discuss within a matter of days a proposal for a Gaza truce that includes the release of hundreds of security prisoners, including terrorists responsible for some of the worst attacks of the second intifada, in exchange for kidnapped soldier Gilad Schalit. Prime Minister Ehud Olmert met with Foreign Minister Tzipi Livni and Defense Minister Ehud Barak following Sunday's cabinet meeting to discuss the situation in the South. The troika decided to bring a detailed proposal to the security cabinet for approval. No date for the security cabinet meeting was given, and one source in the Prime Minister's Office said it might not even be this week. Nevertheless, the security cabinet regularly meets on Wednesday, and there was speculation that the proposals could come up for a vote then. Sources in the Prime Minister's Office said that in light of last Tuesday's elections, any deal would be made in consultation with Likud head Binyamin Netanyahu. Olmert, meanwhile, said Sunday night that Israel would not reopen Gaza's border crossings until Schalit was freed, reiterating a change of policy that he articulated in a statement from his office on Saturday. "We will not allow the opening of the crossings to Gaza, to the extent that it will bring back life to normal, certainly not before Gilad Schalit is home," Olmert said in an address to a delegation of American Jewish leaders visiting Jerusalem. Although progress has recently been reported in Egyptian mediated talks, Olmert cautioned that a deal would not necessarily happen soon. He said that he would not bring any proposal to the cabinet that did not include Schalit's release, and he added that he would not allow unspecified materials into Gaza that would strengthen the Islamist regime's position. In his remarks, Olmert conceded that Israel would need to free many Hamas terrorists in exchange for Schalit. "There are those who might say it is a point of weakness, others will call it a point of great strength that the life of one is so important to us," Olmert said in an address to the annual Jerusalem gathering of the Conference of Presidents of Major American Jewish Organizations. Hamas, meanwhile, said it would not make any concessions regarding the prisoners it is demanding in exchange for Schalit. Hamas representatives said that they presented the Egyptian authorities with a list of some 1,000 prisoners the movement was demanding in an exchange. Abu Obaidah, spokesman for the armed wing of Hamas, Izzadin Kassam, said his group would not accept any prisoner swap that did not include the release of prominent figures such as Ahmed Sa'adat, secretary-general of the Popular Front for the Liberation of Palestine, who was convicted of involvement in the assassination of tourism minister Rehavam Ze'evi in 2001, and Marwan Barghouti, the top Fatah operative who is serving five life-terms for five murders. Channel 10 reported Sunday night that Israel was actually considering the release of Barghouti ahead of any prisoner swap with Hamas, as a way of strengthening Palestinian Authority President Mahmoud Abbas's Fatah faction. Barghouti's lawyer, Hader Shkirat, told Channel 10, "There will not be a Schalit deal without the release of Marwan Barghouti." Abu Obaidah also named two other prisoners that Hamas insists should be included in a prisoner swap: Abbas al-Sayed, the mastermind of the Pessah eve massacre at the Park Hotel in Netanya in March 2002, and Ibrahim Hamed, the former commander of Izzadin Kassam in the West Bank. Abu Obaida insisted that the case of Schalit should be dealt with separately and without any connection to other issues such as the reopening of the border crossings into the Gaza Strip and a truce. "We affirm that the issue of the prisoner exchange has an independent and separate track and should not be linked to other issues," the Hamas spokesman said. "We won't allow the enemy to extort us on this issue." "The ball is now in the Israeli court," a Hamas legislator in the Gaza Strip told The Jerusalem Post. "We are waiting for the Egyptians to tell us about Israel's response." The legislator, who participated in the Egyptian-sponsored talks in Cairo on a possible truce with Israel, said a cease-fire could be announced as soon as Israel accepted Hamas's conditions, namely that the border crossings into the Gaza Strip be reopened and the blockade lifted. He added that with regards to Schalit, "the issue is very simple - if Israel releases all the prisoners we are demanding, the soldier can go home." Ismail Radwan, a senior Hamas official in the Gaza Strip, said he understood Olmert's "strong need" to leave office with "some kind of an achievement, such as the release of the Israeli soldier." Hamas was not opposed to striking a deal on Schalit as soon as possible, Radwan said. "An agreement can be reached immediately once Israel accepts all the demands of the captors," he said. "I see no reason why a deal can't be reached soon." A deal would likely be carried out in two phases. The first stage would include an expanded opening of the Gaza crossings and the release of Palestinian prisoners from a list of 350 names submitted by Hamas. The names would have to be approved by a committee headed by Vice Prime Minister Haim Ramon. In the second stage, according to reports, Schalit would be transferred to Egyptian custody and an additional 500 security prisoners would be released as a gesture to Egyptian President Hosni Mubarak. The third phase would see the full opening of the crossings, the release of another several hundred prisoners - mostly women and teenagers - and the transfer of Schalit to Israel. "There is a new sense of optimism," a defense official said Sunday. "A deal may happen in the coming weeks or may roll over to a new government." In a related development, Shin Bet (Israel Security Agency) head Yuval Diskin told Sunday's cabinet meeting that Hamas was making great efforts to reconstruct its arms smuggling tunnels into the Gaza Strip, and Israel had identified a number of arms shipments that had gotten through since the unilateral cease-fires declared last month. "The Egyptians are acting in a way which suggests that they are combating smuggling," Diskin said. "This is a positive trend, but their actions are relatively slow." Earlier in the cabinet meeting, Public Security Minister Avi Dichter said that despite the achievements of the three-week IDF offensive, Hamas was still a dangerous force, and was still looking to rearm. "When Hamas speaks about the reconstruction of Gaza, they are talking about reconstruction of their supply of rockets, which will be fired into Israel," he said. "Following the successful IDF operation, the smuggling of weapons into Gaza, which includes rockets, is its Achilles' heel," Dichter continued. "The Egyptian action is too little and too slow. The government must define for the army an appropriate, harsh and determined policy in order to create deterrence against Hamas. We must not wait for a rocket to land in Yavne." Speaking about the Palestinian cease-fire violations, the Shin Bet chief said that not all the rockets had necessarily been fired by Hamas terrorists. "The rocket fire is being perpetrated by rebellious elements," Diskin said. "We see all sorts of factions that are trying to commit all sorts of terrorist attacks against Israel." Yaakov Katz contributed to this report.