Israel has agreed in principle to release Marwan Barguti and a number of prominent Hamas leaders from prison – diplomatic sources were quoted as saying in Monday's 'Al-Bayan' newspaper, based in the United Arab Emirates.

According to the report, Israel will free Barguti, Fatah's former secretary-general in the West Bank, and the Hamas officials as part of the burgeoning exchange deal with the Islamist Hamas group in return for captive IDF soldier Gilad Shalit.

The paper asserts that Egypt has been successful in reconciling the differences between Israel and Hamas over the deal, but now fears other groups in the region may attempt to sabotage the deal.

According to the paper, Israel has given its consent, in principle, to the release of 300 Palestinian prisoners, including Hamas leaders Hassan Salame, Abdullah Barguti and Ibrahim Hamed.

The report said Israel was still on the fence on whether it is willing to release the secretary general of the Popular Front for the Liberation of Palestine, Ahmad Saadat – who was convicted and sentenced for his involvement in the murder of the late Minister Rehavam Ze'evi.

A Western diplomatic official described the conditions set by Hamas as "impossible."

According to the official, Hamas is interested in keeping Shalit in captivity as an insurance policy in the event the ceasefire agreement with Israel will collapse.

However other diplomatic sources say the negotiations for Shalit's release are progressing well; this despite Egypt's feeling that both sides are trying to up their demands of the other.

Meanwhile an official familiar with the proceedings told the London-based 'Al-Quds al-Arabi' that the talks between Hamas and Israel have "come a long way" thanks to Egypt's mediation.

The source told the paper that significant developments may be forthcoming later this week, after Israel's envoy overseeing MIA affairs, Ofer Dekel, meets with senior Egyptian officials on the matter in the coming days.

According to the sources, Israel has recently shown a greater willingness to compromise on the list of prisoners Hamas is demanding freed in exchange for Shalit than in the past.