A deal to release a US-Israeli joint national held in a Cairo prison in exchange for 81 Egyptians held in Israel is imminent, unnamed Israeli officials told public radio on Monday.
Ilan Grapel, who has been in custody since June 12, is accused of being an agent of Israel's Mossad intelligence agency and of sowing sectarian strife and chaos in Egypt during the uprising which ousted president Hosni Mubarak in February.
Israel has strongly denied the claims, insisting the whole thing was a mistake and accusing Egyptian authorities of "bizarre behaviour."
News of the alleged deal emerged as Israel and Hamas were poised to complete the first stage of an Egyptian-brokered prisoner swap deal which will see the Jewish state release a total of 1,027 Palestinians in exchange for captive soldier Gilad Shalit.
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Details of a possible agreement for Grapel's release were first reported by Egyptian state-owned Al-Ahram newspaper on Sunday, which said Israel and Egypt were close to agreeing a deal "in which the spy Ilan Grapel... will be released in return for all Egyptians held in Israeli prisons."
Israel is holding 81 Egyptian prisoners, including three children, most of whom are facing criminal charges, including illegal entry to Israel, drug trafficking and arms possession.
Negotiations on an exchange are almost finished, the paper said.
"The success of the Egyptian mediation of the Shalit deal and Israel's formal apology to Egypt for the death of Egyptian soldiers killed on the border by Israeli fire, certainly cleared the road for making the Grapel deal," it said.