They said a German mediator held talks with Hizbullah officials in Beirut last week and a breakthrough appeared close. The sources gave no further details.
The secretive negotiations are designed to secure the release of Israeli soldiers Ehud Goldwasser and Eldad Regev in return for Lebanese and Arab prisoners. The capture of the soldiers in a cross-border raid on July 12, 2006, ignited a 34-day war between Israel and Hizbullah.
The UN-appointed German negotiator began his mission in late 2006. Very little has been heard on the talks since.
Israel says the soldiers were seriously wounded when they were seized and Hizbullah has refused to say whether the men are dead or alive.
Talks continued despite Lebanese tensions
A senior Hizbullah official said on Friday that negotiations continued despite the recent internal violence in Lebanon.
"The negotiations are continuing and never stopped, regardless of the internal events. This in the hopes of speeding up the return of the (Lebanese) prisoners," said Sheikh Nabil Kaouk, chief commander on behalf of Hizbullah in southern Lebanon.
Speaking at a rally in the village of al-Khiam marking eight years since the withdrawal of Israeli forces from the region, Kaouk, the keynote speaker, said joy for Lebanon's sovereignty is incomplete so long as there are prisoners in Israeli jails.
"The issue of the prisoners and detainees is at the top of the resistance's priorities. We will not allow any internal matter or schism to come between the resistance and its priorities, which include the release of the prisoners, the liberation of the Sheba farms and Kfar Shuba, and the defense of our homeland from Israeli aggression," Kaouk said.