Hamas is prepared to sign a deal next week for the release of abducted Israel Defense Forces soldier Gilad Shalit as part of a long-term truce agreement between Israel and the Gaza Strip, the Arabic daily Al-Hayat reported on Friday.

According to the report, Hamas will cement the truce within the next few days and finalize the deal to free Shalit by Wednesday.

Palestinian sources told Al-Hayat that Shalit, who was captured by Hamas-allied militants in a 2006 cross-border raid from Gaza into southern Israel, would be freed in exchange for 1,000 Palestinians jailed in Israel.

According to the report, the deal would include the release of women and children, as well as a number of Palestinian lawmakers and ministers.

Egypt has been trying to broker a prisoner exchange between Israel and Hamas, which is holding Shalit. Cairo's negotiator, Omar Suleiman, told the Egyptian newspaper Al-Ahram on Friday that Israel is refusing to allow iron, aluminum and cement into the Gaza Strip until the deal for Shalit's release has been reached.

Suleiman also said that Egypt has rejected Israel's offer to release jailed Palestinian residents of the West Bank into the Gaza Strip, insisting that they be returned to their homes.

Cairo will meet next week with Israel over Hamas' response to the Egyptian truce proposal, the negotiator added.

According to Suleiman, there are still four obstacles preventing the deal from being finalized: ongoing Qassam fire, the construction of a barrier between Gaza and Israel, Hamas' commitment to observe the truce, and the halt of weapons smuggling into the Gaza Strip.

Suleiman also said that Egypt was prepared to work with the new Israeli government, regardless of its leader, but warned that any attack on Gaza would harm Cairo-Jerusalem relations.

Meanwhile, another Egyptian newspaper reported that Hamas has rejected a Qatari offer of $400 million dollar in exchange for Shalit.

The Egyptian report of an imminent deal on Shalit's release contradicts statement made Thursday night by Hamas deputy chief Moussa Abu Marzouk.

In an interview with the Egyptian news agency MENA, Abu Marzouk confirmed that the Islamic militant group has agreed to a long-term truce with Israel and said Cairo, which has been mediating between Hamas and Israel, would announce the truce within two days of consultations with other Palestinian factions.

However, Abu Marzouk said that a deal for Shalit's release would be negotiated later. He also told the agency that under the Egyptian-brokered deal, Israel will reopen six border crossings with the strip.

Earlier Thursday, Hamas said that the sides had come to an agreement in most of the issues which had been stalling the truce. "Most of the obstacles that prevented us from reaching an agreement were resolved and an announcement of a deal is expected," said Taher al-Nono, a member of Hamas's negotiating team in Cairo.

Nono said the agreement would ensure the end of all violence in the Hamas-controlled Gaza Strip and the opening of the territory's border crossings.

Israel had no comment on the reports.

Terms of Egyptian truce proposal

According to the Egyptian proposal, a declaration of an 18-month ceasefire would be followed by an exchange of prisoners, the opening of Gaza's border crossings and reconciliation talks between rival Palestinian factions.

It would take the place of a shaky January 18 truce that ended Israel's 22-day military offensive in the Hamas-ruled Gaza Strip in which more than 1,300 Palestinians were killed.

Israel's envoy to the talks, senior defence official Amos Gilad, is expected to return to Cairo, possibly on Saturday night.

These are the components of the proposed deal, according to Western diplomats and Palestinian officials:

Gaza-Egypt crossings
Egypt would open the Rafah border crossings with Gaza under the auspices of international monitors and border guards who would report to Western-backed Palestinian President Mahmoud Abbas, Hamas' rival. Turkey may also send a force to oversee the functioning of Rafah, Gaza's only passage to the outside world that does not go through Israel.

The Hamas Islamist group, which beat Abbas's secular Fatah faction in a 2006 election and seized control of the Gaza Strip 18 months later, has been vague on whether it would cede control of the Gaza side of the crossing to Abbas' security forces.

Gaza-Israel crossings
Israel would open border crossings with the Gaza Strip, but it is unclear how soon and under what conditions. Outgoing Prime Minister Ehud Olmert has hinged a full opening of the crossings on the release of Shalit.

Olmert has also refused to offer Hamas guarantees that the passages will stay open.

Israel has insisted that certain materials be barred from entry because they could be used to make rockets, fortifications or explosives. These include certain types of steel piping and chemicals used in agriculture, Israeli defense officials said.

Hamas officials say they have demanded more details about what would be excluded from entering the impoverished enclave, which will require massive amounts of steel, cement and other commercial goods to rebuild after the war.

Prisoner swap
Israeli and Palestinian officials have sent mixed signals about the status of prisoner swap talks. Hamas has demanded that Israel free 1,400 Palestinian prisoners in exchange for Shalit. Diplomats said Israel would free closer to 1,000.

Buffer zone
A 300-meter wide buffer zone would be established along Gaza's border with Israel, from which militants would be barred. Israel initially proposed a zone 500 to 800 meters wide.