Hizbullah has yet to respond to the offer, but the organization's leader Hassan Nasrallah hinted Monday evening that "Samir Kuntar and his brothers will soon return to Lebanon."
It appears that the Israeli threat to declare Goldwasser and Regev fallen IDF soldiers caused Nasrallah to soften his stance and omit two demands he had insisted on so far: The release of Lebanese and Palestinian prisoners in exchange for information on the Israeli captives' condition, and the release of Palestinian, Jordanian and Syrian prisoners jailed in Israel in addition to Lebanese prisoners.
Another issue which has yet to be clarified is the information on the fate of IDF navigator Ron Arad. Israel had agreed to release Kuntar as part of the second stage of a previous prisoner exchange deal with Hizbullah in exchange for certified and proven information on Arad's fate.
Hizbullah supplied information, but it was not new and did not include proof or testimonies regarding Arad's fate after being handed over to the Iranian Revolutionary Guards.
Israel may have agreed to release Kuntar at this time following a Hizbullah commitment to deliver new information on the missing navigator. An unrealistic option is that Israel decided to soften its original stance as well without receiving final and certified information on Arad.
The agreement to release Kuntar may be an Israeli concession in exchange for a Hizbullah agreement to cede the demand to release Palestinian and other prisoners.
Deal will take time
At this stage, according to senior officials in Jerusalem, the official Israel will not respond to the Hizbullah leader's remarks. It turns out, however, that about two weeks ago Israel relayed its last offer at this stage of the negotiations through the German mediator.
According to the proposal, Israel will hand over to Hizbullah five Lebanese prisoners jailed in Israel, as well as the bodies of five Hizbullah men killed during the Second Lebanon War. Israel refuses to discuss the release of Palestinian prisoners with the Shiite organization.
Israeli officials estimate that real progress had been made in the negotiations with Hizbullah, but that this progress does not mean that a prisoner exchange deal will take place within days or even weeks.
According to the estimates, the deal may develop or continue to be stalled according to Hizbullah's reply. Jerusalem is now waiting for Nasrallah's answer.
The Hizbullah leader said Monday evening in a videotaped message broadcast at a Beirut rally marking eight years since the Israel Defense Forces' withdrawal from southern Lebanon that "the prisoners are our commitment and Samir Kuntar and his brothers will soon return to Lebanon."
Thousands of people took part in the rally at the Dahiya Quarter, the organization's stronghold in the southern part of the Lebanese capital.
Several hours before Nasrallah's speech, sources in the Lebanese political system reported that UN-sponsored indirect talks between Israel and Hizbullah over a prisoner exchange have made major progress.
They said a German mediator held talks with Hizbullah officials in Beirut last week and a breakthrough appeared close.
Eldad Regev and Ehud Goldwasser were kidnapped to Lebanon 684 days ago.
Ron Ben-Yishai, Roee Nahmias and Reuters contributed to this report