Israel will release Fatah strongman Marwan Barghouti as part of a deal to secure the release of abducted Israeli soldier Gilad Shalit, the pan-Arab newspaper Al-Sharq al-Awsat quoted Palestinian sources as saying Thursday.

Barghouti is currently serving five life sentences in Israel for his role in a series of deadly terrorist attacks during the second intifada.

According to the report, Israel will also release Ahmad Sadat, a leader of the Popular Front for the Liberation of Palestine, and Ibrahim Hamed, the former commander of Hamas' military wing and the mastermind behind the 2002 terror bombing at the Moment cafe in Jerusalem.

The prisoner exchange will take place next week after the Muslim holiday of Id al-Adha, which ends on Monday, Al-Sharq al-Awsat reported.

Israel will release a total of 1,150 Palestinian prisoners in the deal, the paper said, in three stages: First, Israel will free 450 hardened terrorists, after which Shalit will be transferred to Egypt; Israel will then release the rest of the prisoners in two stages, after which Shalit will be brought to Israel.

The report further said that Egyptian mediators are seeking to complete the deal as a comprehensive package, in which Palestinian President Mahmoud Abbas will also be involved. They want Abbas' Fatah movement to reach a reconciliation agreement with Hamas, the paper said, that would include the announcement of a truce with Israel and the opening of the Gaza Strip's border crossings, where Palestinian Authority policemen would be deployed.

If Barghouti is released in the prisoner exchange, it could have far-reaching strategic implications on internal Palestinian balance of power, and attempts to strike a peace deal with Israel.

Fatah officials say that Barghouti's release could expedite the resignation of Palestinian President Mahmoud Abbas, paving the way for Fatah strongman to assume the post.

In an interview with Italian newspaper Corriere della Sera on Wednesday, Barghouti said he hopes to be freed as part of the Shalit deal, and intends to run for president in Palestinian elections.

Hamas defers Shalit talks, dashing hopes of quick deal

Also Wednesday, Hamas announced that it was postponing continued negotiations over Shalit until after the Muslim holiday of Id al-Adha, which ends on Monday. The Hamas announcement was issued in Damascus following meetings between Khaled Meshal, the organization's political leader there, and a delegation of senior Hamas representatives from Gaza.

The statement is not a negative answer to the compromise deal proposed by the German mediator, but it does dash Israeli hopes for reaching a quick agreement by the end of this week.

Senior Hamas officials told the Al-Arabiya TV network Wednesday that the talks between Hamas and Israel hit a snag over some of the Palestinian prisoners the Islamic group wants freed in return for Shalit, including Marwan Barghouti and Ahmed Sa'adat. Israel is also objecting to freeing Israeli Arab prisoners, said the Hamas officials.

A senior Hamas official in the Gaza Strip, Khalil Al-Haya, accused Israel yesterday of holding up negotiations. "The government of the Zionist entity has not met the demands of the organizations holding Shalit," he said. He did not say that the deal had been torpedoed or had failed, though he did say Israel was responsible for the delay in reaching a deal.

The American station Fox News reported yesterday that Hamas is also demanding that Israel commit to not harming the freed prisoners in the future.

The security cabinet met yesterday in Jerusalem, but discussed the freezing of construction in the settlements. Prime Minister Benjamin Netanyahu has asked ministers to keep completely silent in the media on the Shalit deal.

The deal will have a number of components in addition to the prisoner release. Hamas is expecting the economic blockade on Gaza to be eased and a partial opening of the crossings into Israel and Egypt.

Hamas announced a cease-fire last Saturday, which it said also includes smaller Palestinian organizations, who will not fire rockets on Israel. At the same time the United States is pressuring Netanyahu to make a number of significant good will acts on the behalf the behalf of Abbas, whose regime is expected to suffer as the prisoner release is being attributed to Hamas. The freeze on construction in West Bank settlements is considered one of these acts.