German involvement in mediation over a prisoner swap for the release of abducted Israel Defense Forces soldier Gilad Shalit has advanced the negotiations but a breakthrough is not imminent, Hamas said on Tuesday.

Hamas, the Islamist rulers of the Gaza Strip, wants to trade Shalit for hundreds of jailed Palestinians. Israel long balked at freeing some of the prisoners but local media have recently reported progress.

Hamas does not recognize Israel so the talks have been conducted through Egypt. Its president, Hosni Mubarak, told an American television interviewer last week that his country was working "in collaboration and cooperation with the Germans".

Hamas at first declined comment but on Tuesday a senior official, Ayman Taha, told Reuters: "There is nothing new except the German intervention, which caused things to move. But things have not yet reached a breakthrough."

Nevertheless, Haaretz has learned that that Hamas may be willing to show some flexibiliy in the exchange and that Prime Minister Benjamin Netanyahu is close to concluding a deal with the Islamist group.

At the end of former prime minister Ehud Olmert's term in March, Israel had refused to release 125 of the 450 prisoners Hamas was demanding in exchange for Shalit - those who committed the most serious offenses.

The two sides had also disagreed over how many prisoners from the West Bank would be sent to the Gaza Strip or abroad after their release.

However, observers now report cautious optimism on both sides about the chances of concluding a deal.

Defense Minister Ehud Barak and his wife Nili on Monday visited the Shalit family in Mitzpeh Hila in northern Israel. Netanyahu is thought to have a better relationship with the Shalits than Olmert did, and the Shalits seem to have confidence in him. This could be the reason for their toned-down statements regarding the government.

Appointing Hagai Hadas as chief negotiator in place of Ofer Dekel has also improved the atmosphere. Hadas seems to have better relations with the Shalits, Netanyahu and the defense establishment heads.

Dekel's relationship with the Shalits was tense in his last months as negotiator. His disagreements with Shin Bet head Yuval Diskin and to a lesser extent Chief of Staff Gabi Ashkenazi made it difficult for him to do his job.

Last week the Egyptian mediators, headed by General Mohammed Ibrahim, visited Damascus, where they spoke with Hamas leaders including politburo chief Khaled Meshal.

Hamas needs an achievement

Palestinian commentators said Hamas now appears interested in signing a deal: Hamas needs an achievement, given its defeat in the IDF offensive in the Gaza Strip in January, Gaza's stalled rehabilitation and especially its diminishing status versus Fatah in Palestinian public opinion.

Recent Palestinian public opinion surveys give Fatah a 16-percent advantage over Hamas, should a vote occur now.

The biggest potential breakthrough for Hamas would be a deal freeing 450 prisoners jailed for severe crimes, whom Fatah has so far failed to release.

Egyptian President Hosni Mubarak last week disclosed Germany's involvement in the mediation. The Germans have the advantage of being considered honest brokers, as a party outside the region, Mubarak said.

Egypt used to state that Shalit's release should come only after a long-term cease-fire between Hamas and Israel, and a reconciliation between Hamas and Fatah. However, neither Hamas nor Fatah are now interested in reconciliation.