Israel Sets Conditions for Its Role in Any Hostage Deal : Diplomacy: Israeli prisoners captured in Lebanon must also be set free, officials say.

Israeli officials reacted with reserve Tuesday to the anticipated release of Western hostages held by Muslim extremists and said that for Israel to be part of any deal, Israeli prisoners held in Lebanon must also be set free.

The comments came amid widespread reports that Israel will release captives it holds in a south Lebanon prison as a payoff for the release of American hostage Robert Polhill or as a gesture to help secure the release of more foreign hostages held by Shiite Muslim groups in Lebanon.

In past years, Israel has freed a limited number of Muslim prisoners from the Khiam Prison as a goodwill gesture for the Muslim Eid al Fitr feast. Eid al Fitr is the last day of Islam’s annual month of fasting called Ramadan, which ends this week. Khiam Prison is inside a buffer zone controlled by Israeli troops and a client Lebanese militia, the South Lebanon Army.

In Beirut, the Lebanese newspaper An Nahar said that the groups holding the foreign hostages would not release more of them until Israel releases prisoners from Khiam.

In Damascus, the Syrian Foreign Ministry said it is still working in high gear to negotiate the release of a second hostage, although prospects for immediate results were uncertain.

“There will be another hostage release,” a Syrian government official said. “I can’t tell you when. Maybe a day, maybe a week.”

“I think the atmosphere is still very positive, very optimistic,” said one source close to the negotiations, pointing to the prediction this week by Hussein Moussawi, a leading pro-Iranian Shiite cleric, that a second hostage release “is in the cards.”

Moussawi heads the Islamic Amal wing of Hezbollah (Party of God), a pro-Iranian Shiite organization that is believed to be the parent movement of several Shiite groups holding foreign hostages in Lebanon.

But other sources said there have been no official notifications that the release of a second hostage is imminent, nor any indication of what the nationality of any additional hostage to be released might be.

Speculation Tuesday centered on Irish or Swiss hostages.

In New York, Iranian Foreign Minister Ali Akbar Velayati met for 40 minutes with his Irish counterpart, Gerard Collins, and said: “There are some hopes that the hostage from Ireland will be released.” He did not say when.

He was referring to Brian Keenan, a teacher at the American University of Beirut when he was seized April 11, 1986.

And in the southern Lebanese port of Sidon, Mustafa Saad, leader of the pro-Syrian Sunni Muslim Popular Liberation Army that controls the port, told reporters: “We’re in contact with several parties concerned to ensure the speedy release of the Swiss captives,” a reference to Swiss Red Cross workers Emmanuel Christen, 33, and Elio Erriquez, 24, kidnaped by unidentified gunmen last Oct. 6.

In Washington, the Bush Administration continues to be cautious about the prospects of another early hostage release. Asked if there were any new indications to back up speculation of freedom for the second of the seven remaining Americans held in Lebanon, White House Press Secretary Marlin Fitzwater said, “I think the most honest answer at this point has to be no, although there are some encouraging rumblings.”

The most optimistic indications of progress Tuesday came from Israel.

An Israeli Foreign Ministry official in Jerusalem said: “We are willing to trade prisoners of war for prisoners of war we hold. If also such an act would contribute to the release of hostages, we would welcome it.”

The official hinted that a release of prisoners from Khiam Prison might be possible by describing the detainees there as “prisoners of war” and not “terrorists.” The freeing of prisoners dubbed “terrorist” is controversial in Israel because it is felt that many Palestinians who were released during the 1980s in a prisoner swap became core leaders of the current Arab uprising in the West Bank and Gaza Strip. The release of Lebanese guerrillas who have fought Israel and its Lebanese militia would not present such a problem, he noted.

Israeli Television reported late Tuesday that four prisoners were freed from Khiam Prison by the South Lebanese Army. The report said the four were from south Lebanon and were not involved in guerrilla attacks.

For its part, Israel is trying to retrieve two soldiers and an air force navigator of its own captured by Shiite Muslim militias in southern Lebanon. Last July 28, Israeli commandoes abducted Sheik Abdel Karim Obeid, a Muslim cleric, from his home in Lebanon in hopes of trading him for the Israeli POWs. Obeid is still being held inside Israel.

In Washington, the Bush Administration continued to reject any possibility of a deal for the freedom of the seven remaining American hostages. But U.S. officials said that did not preclude Israel or any other party from making moves that might facilitate further releases.

The attraction for the United States of having another party intervene is that it does not involve any concessions from the Bush Administration. A U.S. official noted Tuesday that Washington has no control over Israel’s foreign policy or actions.

Times staff writers Kim Murphy, in Damascus, and Robin Wright, in Washington, contributed to this report.