JERUSALEM - An Israeli cabinet minister said on Friday he was optimistic about prospects for a prisoner swap with Palestinians for captured soldier Gilad Shalit, suggesting that talks were still alive to achieve a deal.

Benjamin Ben-Eliezer, minister of infrastructure and member of a cabinet inner circle on security issues, was the first senior Israeli to comment on a possible prisoner exchange since negotiations on a deal hit a snag on Wednesday.

I'm optimistic and pray that Gilad Shalit will be home soonest, Ben-Eliezer told Israel's Channel 10 television.

Hamas Islamist militants have demanded freedom for hundreds of prisoners held by Israel in return for Shalit, who was captured in 2006.

Ben-Eliezer would not give any time frame for a potential deal. When asked whether it could be completed by the end of 2009, he replied: The only thing I can say is I'm optimistic.

This government, as opposed to others in the past, has begun a process and will bring it to completion, added Ben-Eliezer, a member of the left-of-center Labour Party.

Talks on a swap, mediated by Egypt and Germany, hit an obstacle two days ago, a source close to the talks had told Reuters, after Israel refused to free two prisoners topping Hamas's list, whom Israel accuses of making bombs for attacks in which dozens were killed.

A few days earlier, Israel and Hamas came closer to a prisoner deal when officials said Israel had dropped objections to freeing 160 prisoners whose freedom was sought by Hamas.

Israel has in the past repeatedly recovered captured hostages and remains of slain soldiers from its conscript army through massively lopsided swaps.

Shalit was seized by Hamas-led gunmen in a raid across the Gaza border, and public pressure in Israel to return him is strong. Freedom for the soldier may help to ease an Israeli blockade that causes hardship in the Gaza Strip.

Prisoner releases are also emotive for Palestinians, who see their nearly 11,000 jailed brethren as heroes of a struggle to found an independent state or -- in Hamas's case -- of an open-ended conflict with the Jewish state.

(Writing by Allyn Fisher-Ilan; Editing by David Stamp)

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