JERUSALEM - Israeli Prime Minister Benjamin Netanyahu held marathon talks with cabinet ministers on Monday but without any announcement for a prisoner swap with Gaza's Hamas rulers to secure the release of a captured soldier.

A terse statement issued by Netanyahu's office, saying only that the Israeli leader instructed his negotiating team to continue efforts to bring home 23-year-old soldier Gilad Shalit, appeared to indicate that Israel had yet to accept Hamas's terms for an exchange.

The statement did not say whether Netanyahu would meet again with his ministers on Tuesday.

Noam Shalit, whose son Gilad has been held by Palestinian militants in the Gaza Strip since 2006, told reporters after meeting Netanyahu a final decision on a deal was likely by Tuesday.

Egypt and Germany have been mediating the prisoner exchange, which officials have said would set Shalit free in return for about 1,000 Palestinians of the 11,000 held in Israeli jails.

Hamas has demanded senior militants, responsible for attacks that killed dozens of Israelis, be released. Shalit's parents have intensified a public campaign to carry out such a trade, arguing the alternative would be their son's death.

I'm still not optimistic, but I'm also not pessimistic, Noam Shalit said after Netanyahu, taking a break from ministerial consultations that began on Sunday, briefed him.

The soldier's mother and siblings were also among a crowd of demonstrators outside Netanyahu's office demanding a decision to go ahead with an exchange. They placed cardboard cut-outs of Shalit at the site.

DILEMMA
For Netanyahu, a right-winger whose tough dealing with militants has been a centrepiece of his political career, the release of prisoners with Israeli blood on their hands poses a particular dilemma.

Will Netanyahu throw the principles he has believed in for so many years into the dustbin of history and listen to the cries of the Shalit family? political commentator Shimon Shiffer asked in Israel's Yedioth Ahronoth newspaper.

Netanyahu is also under pressure from the families of Israelis killed by Palestinian militants not to agree to their release.

Israeli media reported Netanyahu was intent on barring convicted killers from returning to homes in the occupied West Bank, territory near Israeli cities, and that they might be sent instead to the Gaza Strip or foreign countries.

An official close to the talks, who spoke to a Reuters correspondent in the Gaza Strip, said Hamas was unlikely to soften its demands, and that ultimately any deal would have to be approved by leaders of the group living in exile.

An exchange in the coming days would coincide with the first anniversary of the offensive Israel launched in the Gaza Strip last December 27. At least 1,400 Palestinians and 13 Israelis were killed in three weeks of heavy conflict.

The United Nations and Western powers hope a successful swap will open the way to a relaxation of Israel's blockade of Gaza, where 1.5 million Palestinians are dependent on food aid and smuggled goods for daily survival.

Netanyahu has given no indication he would ease the restrictions after a deal with Hamas, a group that has spurned Western demands to recognise Israel and renounce violence.

(Editing by Michael Roddy)

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