Israel has signed an agreement to swap prisoners with the Lebanese Hezbollah guerrillas, according to a statement released Monday, as Israeli forces began digging up the bodies of Lebanese fighters to be exchanged in the deal.

The statement said the deal was signed "in the presence of a U.N. representative." The Israelis say implementation of the deal depends on carrying out further step, but it not say what they are.

Israel approved the swap on June 29. Israel will hand over Samir Kantar, serving multiple life terms for a 1979 attack in Israel's north, as well as four Hezbollah prisoners and dozens of bodies of fighters. In return, Israel is to receive two soldiers captured by Hezbollah in a 2006 cross-border raid that set off a fierce 34-day war.

Israeli Prime Minister Ehud Olmert declared the two soldiers dead before his Cabinet approved the deal, but Hezbollah leader Hassan Nasrallah, who has not allowed Red Cross visits or given any sign that the two are alive, called the declaration "speculation."

Israeli military officials said the exchange is likely to take place between July 13-16. They spoke on condition of anonymity because final arrangements have not been made.

Kantar is serving multiple life sentences for one of the most gruesome attacks in Israeli history. He was convicted of shooting a policeman and then killing an Israeli man in front of his 4-year-old daughter before beating her to death. Kantar denies killing the girl.

On Monday the family of the police officer appealed to Israel's Supreme Court to block the exchange.

"Don't release Kantar. He is a despicable mass murderer, and Israel will be sorry in the end," the slain policeman's daughter, Keren Shahar, told reporters on Monday.

The court is not expected to intervene in the deal.

Earlier, the military confirmed that the process of exhuming bodies has begun at the Amiad cemetery for enemy combatants, not far from the Israel-Lebanon border. It was declared a closed military zone to prevent reporters from witnessing the process. The military rabbinate called up reservists to help with identifying the bodies before the exchange.

In another aspect of the agreement, mediated by a U.N.- appointed German official, Hezbollah has compiled a report on the fate of Ron Arad, an Israeli airman captured alive after his plane was shot down over Lebanon in 1986.

Israeli negotiator Ofer Dekel was in Europe on Monday to pick up the report, the defense officials said. However, announcing the signing of the agreement, government spokesman Mark Regev added, "so far we have not received the report concerning the fate of our missing navigator, Ron Arad. When that report is received, we will have discussions inside the government on how to move forward."

Regev would not say where the signing took place.

In exchange for the report on Arad, Israel is to provide information on four Iranian diplomats who disappeared in Lebanon in 1982. Iran claims they were kidnapped by Lebanese militiamen allied with Israel, who delivered them to Israeli troops. Israel has long denied holding them, and Samir Geagea, former head of the disbanded Lebanese Forces, has said militiamen killed them.

Israel invaded Lebanon in 1982, taking over large areas as part of a military sweep to expel Palestinian guerrillas.