Fadwa Barghouti told The Associated Press that she was skeptical her husband would be freed. She said Arafat delivered the news in a 2 a.m. phone call.
Israeli officials refused to comment on the report.
Barghouti is on trial for murder, charged by Israel with complicity in terror attacks that took the lives of 26 Israelis. The prosecution completed its case on June 2, but Barghouti, who does not recognize the right of the Israeli court to try him, had not decided whether to present a defense.
Barghouti is the West Bank leader of Arafat's Fatah (search) movement. He made fiery speeches in favor of Palestinian resistance and became a symbol of the current uprising. But he has insisted that as a member of the Palestinian parliament he is a political figure and has no connection with violence.
Israel has never indicated that Barghouti would be released. The highest-ranking Palestinian official in custody, he is being tried by a civilian court, an unusual step underlining the importance the Israelis give the proceedings.
However, one of Barghouti's lawyers was in Cairo last week for discussions with Egyptian officials, leading to speculation that a deal might be in the works to trade Barghouti for Azzam Azzam, an Israeli Arab imprisoned in Egypt since 1997 on espionage charges.
That speculation have been reinforced by Egypt's deep involvement in trying to negotiate a cease-fire to halt attacks by Palestinian militants against Israelis, allowing the implementation of the U.S.-backed "road map" peace plan.