JERUSALEM —  Prime Minister Ehud Olmert on Sunday said he had been on the verge of releasing Palestinian prisoners as a goodwill gesture before an Israeli soldier was captured, but ruled out a swap with the Hamas militants holding the serviceman.

"It's not a secret before the kidnapping that we would free prisoners. But we intended to release them to moderate elements and not to terrorist elements," Olmert told his Cabinet, according to meeting participants.

Olmert said he was planning the prisoner release ahead of a planned meeting with the moderate Palestinian president, Mahmoud Abbas. That meeting was called off after Hamas-linked militants captured Cpl. Gilad Shalit in a cross-border raid on June 25.

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The militants holding Shalit have demanded a large-scale prisoner release by Israel — something that Olmert once again rejected.

"The release of prisoners means destroying the moderates in the Palestinian Authority, and would signal to the world that Israel can only talk to extremists," he said.

On Friday, Abbas told reporters that he had discussed the possibility of a prisoner release during a brief meeting with Olmert in Jordan last month. That meeting was meant to lay the groundwork for a formal summit.