Hezbollah leader Hassan Nasrallah said Tuesday there is "positive progress" in negotiations to swap two Israeli soldiers the group captured last year for Lebanese prisoners.

Nasrallah said a limited exchange on Monday in which Israel returned a prisoner and the bodies of two Hezbollah guerrillas in exchange for the body of an Israeli who drowned at sea two years ago provided "an important incentive" for a major prisoner swap in the future.

Hezbollah's capture of two Israeli soldiers in July 2006, sparked a 34-day war between the Lebanese guerrillas and Israel, leaving about 1,400 people dead. But Israel failed to win the freedom of its soldiers.

Hezbollah has repeatedly said it would only exchange the two soldiers against the release of all Lebanese and Arabs detained in Israel. Negotiations are being mediated by the United Nations.

"There is positive progress in the main negotiations over the two soldiers and the prisoners," he said on TV Tuesday. "I assert that there are strenuous negotiations, continuing sessions which will be resumed in days," he said of the talks.

Israeli government officials declined to immediately comment Hezbollah's assertion, saying they would have to study the speech first.

Earlier Tuesday, Israeli Prime Minister Ehud Olmert said the return of the two soldiers is still far off, dashing hopes the swap a day earlier would pave the way for a bigger exchange.

Monday's exchange on the heavily guarded Israeli-Lebanese border was the fourth between Hezbollah and Israel in recent years.

Although the swap was small in scale, its success was widely seen as improving the chances of further exchanges. Hezbollah even had some rare positive words for Israel, praising the exchange "as an expression of humanitarian goodwill by both sides."

In a speech broadcast on national radio Tuesday, Olmert urged caution, saying it would be a long time before Israel brought home the two soldiers, Ehud "Udi" Goldwasser and Eldad Regev.