The Israeli soldier Gilad Shalit has completed the first stage on his journey home to Mizpe Hila, northern Israel, beginning a prisoner swap deal in which hundreds of Palestinian inmates are to be freed in return for the armoured sergeant who was captured in 2006.

According to an Israeli military spokesman, Shalit is undergoing assessment at Kerem Shalom, close to the Egyptian-Israeli border, before making his way to the Tel Nof airbase in central Israel, where he will be reunited with his parents and meet the Israeli prime minister, Binyamin Netanyahu.

Hundreds of Palestinian prisoners are now in position, waiting to be released to Gaza and the West Bank. The Hamas prime minister, Ismail Haniyeh, and other leading figures in the Palestinian Islamist movement are at Rafah to welcome them. Those being released to the West Bank will be taken to President Mahmoud Abbas's compound in Ramallah for a ceremony which includes laying a wreath at the tomb of Yasser Arafat.

Shalit was taken across the Gaza border into Egypt early on Tuesday. Hamas's al-Aqsa TV reported that a high-level Hamas delegation arrived on the Egyptian side of the border crossing in preparation for a formal handover and to greet the returning prisoners.

Shalit's father, Noam, made a brief television appearance on his way to the Tel Nof base. Asked whether this was the happiest day of his life, he said: "Yes, you can make that assumption."

The deal caps a five-and-a-half year saga that saw multiple Israeli military offensives in the Gaza Strip, an Israeli blockade on the territory and numerous rounds of negotiations that ended in deadlock.

Officials on both sides have said that conditions, prompted in part by the recent Egyptian revolution, helped drive them to an agreement. Both sides have been eager to have good ties with the new Egyptian regime, which brokered the deal.

In all, Israel is slated to release 1,027 prisoners for Shalit with the final 550 to be freed in about two months.

Before dawn, convoys of white vans and trucks transported hundreds of Palestinian prisoners to the locations in the West Bank and on the Israel-Egypt border where they were to be freed. In Gaza, the Red Cross confirmed that the prisoners slated for release had arrived at the nearby border crossing.

About 200 relatives of prisoners waited at a West Bank checkpoint as the exchange unfolded.

"We're so excited we can barely breathe," said Mariam Shkair, waiting for her brother, 52-year-old Abdel Latif, who spent 25 years in prison for killing an Israeli soldier. "We are waiting to hug him."

Some of the relatives raised Palestinian flags or the green banners of Hamas. A group of young men chanted, "We will continue our struggle."

The exchange, negotiated through Egyptian mediators because Israel and Hamas will not talk directly to each other, is going ahead despite criticism and court appeals in Israel against the release of the prisoners. Nearly 300 of them were serving lengthy sentences for involvement in deadly attacks.

The exchange involves a delicate series of staged releases, each one triggering the next. The Red Cross and Egyptian officials are involved in facilitating the movement of prisoners.

When Tuesday's exchange is complete, 477 Palestinians held in Israeli jails, including 27 women, will have been released, several of them after decades behind bars.

More than 200 prisoners, originally from the West Bank, will instead be sent to the fenced-off Gaza Strip. And some 40 prisoners will be deported to Syria, Qatar, Turkey and Jordan, Palestinian officials said.

Little is known about Shalit's condition. Although he appeared healthy in the only time he has been seen in captivity in a brief and scripted 2009 video released by Hamas he was denied all visits, including by the Red Cross.

An intense media campaign to free Shalit made him a national symbol in Israel, and all local radio and TV stations held special live broadcasts Tuesday, following every step of the exchange.