“On Sunday, the government will have to take difficult decisions with a painful price involved but these decisions are necessary to save lives,” Mr Sharon said, referring to the day when the exchange deal will be put before ministers at the weekly cabinet meeting.

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Mr Sharon stressed the government’s need to address the hostage issue.

“We know who these murderous organisations are … Thus, given the special danger facing the lives of those who are in the hands of terrorists, whether civilians or soldiers, the government of Israel cannot run away from giving an answer,” he said.

Mr Sharon faces a major battle to persuade fellow ministers to back the prisoner exchange.

Under terms of the deal, Israel is likely to secure the release of businessman Elhanan Tannenbaum and the bodies of three soldiers in exchange for the freedom of a number of Hezbollah figures – reportedly 19 – and hundreds of Palestinians.

Media reports said the deal involved 400 Palestinians and 19 Hezbollah members.

Meanwhile, the Palestinian leadership was still wrestling over the formation of a new government, with Prime Minister Ahmed Qorei struggling to persuade veteran leader Yasser Arafat to accept his choice of interior minister.

The central committee of the mainstream Fatah movement met again on Thursday in the West Bank town of Ramallah but failed to break the deadlock.

The stalemate is holding up renewal of high-level contacts with Israel and could derail a conference of international donors who have been supporting the cash-strapped Palestinian Authority.

And as violence continues, three Palestinians were shot dead by Israeli soldiers in the West Bank on Thursday.

Residents of the village of Almusader in central Gaza say Israeli special forces entered a home and killed a gunman in an exchange of fire.

A few hours earlier, two Palestinians were killed and nine wounded, including two women, in an exchange of fire between armed Palestinians and Israeli soldiers on the outskirts of the city of Khan Younis

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