Israeli Prime Minister Ehud Olmert held a long meeting on the issue with Shin Bet intelligence chief Yuval Diskin before a Cabinet meeting tat was to include Defense Minister Ehud Barak, Foreign Minister Tzipi Livni and the heads of the defense establishment, Ynetnews.com reported.
Shalit was captured by Hamas during a Gaza-Israel cross-border raid in June 2006 and has been held hostage since.
Unnamed sources told Ynetnews the first stage of a Shalit agreement with the Palestinian militant group Hamas would include the partial reopening of border crossings into Gaza and the release of Palestinian prisoners from a list of 350 names.
The sources said the agreement's second stage would see Shalit transferred to Egypt while about 550 accused terrorists of "medium" rank would be released as a gesture to Egyptian President Hosni Mubarak.
That would be followed by Shalit's return to Israel and the full opening of Gaza crossings into Israel, the Web site said.
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