The report cited Palestinian sources associated to the Palestinian government.
The sources refused to confirm that the Palestinian side agreed to the recommendation, and said that the proposal is being seriously studied.
They added that the Palestinians are insisting on including the release of all female Palestinian prisoners and those under the age of 18 as a condition for the release of Shalit.
The Egyptian proposal is one of a number of suggested solutions reported on by the Palestinians.
Another Egyptian initiative called on the release of Shalit to take place first, followed by a release by Israel of Palestinian prisoners, as a tribute before a meeting between Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas. According to reports, that proposal also ran into difficulties.
The al-Sharq newspaper reported that from a Palestinian perspective, it was obvious that Israel would release all of the ministers and parliament members, as well as other Hamas ministers recently arrested following Shalit's kidnapping.
Palestinians are demanding to receive a written obligation by the Israeli government for the release of Palestinian prisoners, since according to the report they have no faith in the Israeli side and are unwilling to carry out a deal based solely on goodwill.