Spokesman Abu Ubaida said Izz el-Deen al-Qassam and two other factions holding Corporal Gilad Shalit for more than six months were not yet ready to free him, but a deal could be close after what he described as a change in the Israeli position.
''There is a breakthrough in this file and we hope it will be concluded very soon,'' Abu Ubaida said.
But an Israeli government official said progress was steady rather than dramatic.
''Nothing's going to happen overnight,'' the official said yesterday.
The armed factions have demanded Israel free more than 1,000 Palestinian prisoners in exchange for Shalit, abducted in June by gunmen who burrowed into southern Israel from the Gaza Strip.
One of the groups, the Popular Resistance Committees, said Shalit might be handed to Egypt after Israel freed a first group of prisoners. The Egyptians would keep him until Israel then released another batch.
''The swap depends on whether there is an Israeli intention to make it happen. If there is such an intention, it could happen very soon,'' said PRC spokesman Abu Mujahed. He did not say how many prisoners might be freed under a deal.
Mujahed said Shalit was in good health and being treated according to ''Islamic values''.
Shalit's abduction prompted a devastating military offensive into the Gaza Strip, from which Israel had withdrawn troops and settlers in 2005. The offensive was brought to an end by a truce in November.
EID WISHES Israeli Prime Minister Ehud Olmert has said Israel would be prepared to free Palestinians if Shalit is returned. Israel has kept quiet on details of diplomatic dealings to bring him home.
Olmert's planned visit to Egypt this week has stirred speculation that a deal could be close.
Israel does not talk to Hamas, which is formally dedicated to destroying the Jewish state, but has said it could free prisoners to President Mahmoud Abbas, a moderate who seeks an independent Palestine alongside Israel.
Olmert's office said on Sunday he had called Abbas earlier to wish him and the Palestinians for the Muslim holiday of Eid al-Adha, which began on Saturday and ends on Wednesday.
His office said both leaders ''agreed to advance in the coming days the issues discussed'' at their first formal meeting on December 23. Then, Olmert agreed to release 0 million in frozen tax revenues to Abbas, bypassing the Hamas-led government, and lift some checkpoints in the occupied West Bank.
Army Radio reported Israel was expected to begin removing some checkpoints in the West Bank today.
Israeli political sources said on Friday Olmert had dropped an idea to free prisoners as a gesture to Abbas ahead of the Muslim holiday as he lacked sufficient cabinet support for such a move and had faced criticism from Shalit's family.
After the summit, Olmert had suggested such a release could happen as a way to strengthen Abbas and cement hopes of a revival in peacemaking even before militants in Gaza freed Shalit.
A Palestinian uprising erupted soon after the last round of peace talks collapsed in 2000, and hopes of reviving them appeared all but dead when Hamas took power in Gaza and the West Bank in March.
Israel holds more than 9,000 Palestinian prisoners, according to the independent Israeli human rights group B'Tselem.
Reuters DH VP0620