Israel's Security Cabinet will decide about a possible prisoner exchange with Hamas, freeing hundreds of Palestinian prisoners for a soldier captured in June 2006, an Israeli official said Tuesday.

The top-level meeting is set for Wednesday, said government spokesman Mark Regev. He said decisions were expected on the prisoner issue and terms of a truce in Gaza after Israel's bruising offensive there last month.

On Tuesday, Prime Minister Ehud Olmert repeated his new condition that the soldier, Sgt. Gilad Schalit, must be freed.

"We will negotiate his release first, and only then will we be willing to discuss things like the Gaza crossings and rebuilding the (Gaza) Strip," Olmert said during a tour of Jerusalem. Israel and Egypt clamped a blockade on Gaza after Hamas overran the territory in 2007, allowing only humanitarian supplies in.

But Olmert indicated that might take weeks. Referring to the fact that his term will end when a new prime minister takes over, he said, "Even if Schalit's case cannot be resolved while I am in office, the foundations we built will facilitate in his release."

Last week's Israeli election ended inconclusively. Israel's president will start consultations with political parties Wednesday, beginning a period of up to seven weeks toward formation of a new government.

At stake in the truce talks is stabilizing the area after Israel's punishing offensive in Gaza last month, aimed at Hamas militants who rule Gaza and took part in or allowed daily rocket fire at Israel. Since the fighting ended Jan. 18 when Hamas and Israel independently declared a truce, there has been sporadic rocket fire from Gaza, triggering Israeli airstrikes aimed at smuggling tunnels and Hamas outposts.

Egypt has been mediating, because Hamas and Israel refuse to deal with each other directly.

Israel, the U.S. and EU list Hamas as a terror organization, because it has sent dozens of suicide bombers into Israel, killing hundreds.

Hamas does not recognize Israel. Many Hamas leaders stick to the group's ideology calling for destruction of the Jewish state, but some say they would accept a Palestinian state next to Israel.

The main issues in the mediated talks will be discussed at the Wednesday meeting of the Security Cabinet, Regev said.

Hamas wants hundreds of Palestinian prisoners released in exchange for Sgt. Gilad Schalit, the soldier captured in a cross-border raid in June 2007. Some of the prisoners on the Hamas list were convicted of participating in or planning some of the bloodiest Palestinian attacks against Israel.

Israel has had a policy of not freeing prisoners directly involved in deadly attacks, but the principle has been eroded in recent years.

While Israeli media are playing up the Wednesday meeting as crucial, it is more likely to be another in a series of discussions, and any decision would serve as another step in the negotiating process.

In Damascus, exiled Hamas leader Khaled Mashaal complained about Olmert's new condition, freeing the soldier as a first step in the process.

"There can be no truce unless the (Gaza) blockade is lifted and the crossings are opened. The truce issue should not be linked to the issue of prisoner Schalit," Mashaal told reporters in Damascus after meeting with Arab League Secretary-General Amr Moussa.