The decision made by the ministersm however, was of a declarative nature only, and the actual deal may have to wait for the next government to take office.
Prime Minister Ehud Olmert asked his ministers to approve the principle that a prisoner exchange deal with Hamas would take place before another truce is declared and before the Gaza Strip crossings are reopened, and the ministers agreed with him unanimously.
In the cabinet's statement, Israel expressed its appreciation for Egypt's efforts but stressed that as long as Shalit was not released the Gaza crossing would remain closed and the truce would not take effect officially.
However, the crossings will be opened partially in coordination with the Palestinian Authority and other relevant sources, in a bid to bring in basic equipment for the Strip's residents.
"Israel will respond with force to ongoing act of terror against it from the Gaza territory, including the firing of rockets, the smuggling of weapons and the build-up of the terror organizations," the cabinet said. "Israel views Hamas as solely responsible for any terror activity, and will claim the price for ongoing acts of terror, including smuggling, from Hamas. The cabinet authorizes the prime minister and defense minister to prepare for an appropriate response."
Olmert noted that the understandings of the first lull made it clear that "without a solution to the Shalit issue it will be impossible to maintain a truce." He claimed that the arms smuggling continued during the first lull.
"There was no arrangement along the way. (Foreign) Minister Livni was firm in regards to any talks about an arrangement. I supported understandings with Egypt, not an arrangement. We did not give the Egyptians any understanding or outline from which we suddenly pulled away.
"Amos Gilad (head of the Defense Ministry's Diplomatic-Security Bureau) updated the cabinet that an agreement had been reached to link the opening of the crossings to Shalit's release. The cabinet's decision to hold fire was made in this spirit.
"We have our own interests. The cabinet expresses a stance which does not mean we are ending the game with Egypt. It's our duty to insist on our interests, rather than engage in terrifying and threatening ourselves," the prime minister said.
Question of price
Before the meeting, Olmert met with Defense Minister Barak and his special emissary to Egypt, Amos Gilad. The latter was rebuked over his criticism of the government in light of Egypt's disappointment by the Israeli stance.
Olmert said to Gilad, "This was an insolent and rude act by a civil servant against the prime minister, and an unacceptable behavior in a proper regime."
Operation Cast Lead and the Israeli elections seemed to have created the conditions for a prisoner swap deal, but the prime minister sounded slightly reserved on Tuesday. "I hope these things end shortly, but even if they don’t end during my tenure, the foundations we've built will help Gilad Shalit's release," Olmert said.
In any event, Olmert did not convene the ministerial committee headed by Vice Premier Haim Ramon to relax criteria which would allow the release of an additional 120 to 140 senior Palestinian terrorists included in Hamas' list of demands, in addition to 230 which have already been approved.
Egyptian officials, who have been acting as mediators in the truce talks between Israel and Hamas, have expressed their anger over what they defined as a change of stance, after Defense Ministry official Amos Gilad did not precondition the truce with Shalit's release during his recent visits to Cairo.
Hamas politburo chief Khaled Mashaal also said that the demand to advance the Shalit deal was only raised by Israel in the past few days, and could torpedo the entire negotiations. A senior group member said Wednesday morning, "Israel has deceived us."
Shalit's friends outside cabinet meeting (Photo: Gil Yohanan)
Many activists demonstrated Wednesday morning outside the National Security Cabinet meeting, urging the ministers to use the end of their tenure to return a soldier kidnapped "during their shift".
"Don't let Gilad turn into another Ron Arad (missing IDF navigator)," one of them said, noting that Shalit was being held in Gaza for nearly 1,000 days.
"In the past week we have been witnessing the leaders' zigzagging on the Shalit issue," said Guy Eliasaf, a member of the campaign for Shalit's release.
"We see the defense minister's capitulating messages, the prime minister who no longer sounds as unequivocal as he did before the elections, and we know this mustn't happen. We are here to pressure them to make the best decision for the IDF's soldiers, the State of Israel and the Shalit family."
Roi Mandel contributed to this report