Prime Minister Ehud Olmert Saturday sent back the list of Palestinian prisoners slated for release to the Shin Bet and Justice Ministry, demanding the removal of several dozen names. Olmert ordered that a new list be drawn up of prisoners with more time remaining on their jail sentences.

At Sunday’s cabinet meeting, Olmert is expected to ask for approval of the decision to release 250 prisoners who are residents of the West Bank and members of Fatah, as a gesture to Palestinian Authority Chairman Mahmoud Abbas. Their release will follow criteria set by Ariel Sharon’s government four years ago, starting with the ban on releasing any prisoners “with blood on their hands,” meaning any who have murdered Israelis.

However, Israel will consider releasing on humanitarian medical grounds several longtime prisoners from Fatah who were convicted of serious crimes and served in jail for many years. Similar gestures were made under Sharon.

A political source in Jerusalem said that the criteria for release will favor prisoners who have served two-thirds of their sentence, but that if not enough prisoners were found who met the rules, Israel would be flexible and release prisoners who had completed less than two-thirds of their sentence.

A team headed by Justice Ministry Director General Moshe Shilo will put together the list of prisoners with input from the Shin Bet, the police, Prisons Service and the army.

In a related development, an Israeli official dealing with missing Israel Defense Forces soldiers told a Lebanese terrorist jailed in Israel that there has been progress on prisoner swap talks with Hezbollah, a Palestinian newspaper reported Saturday.

According to the report in Al-Ayyam, Ofer Dekel, Prime Minister Ehud Olmert’s special coordinator responsible for the return of missing or abducted IDF soldiers, made the remarks in a meeting with Samir Kuntar at Hadarim prison.

Kuntar is currently serving four life sentences at the prison near Netanya for the 1979 murder of four Israelis.

Hezbollah are reportedly requesting Kuntar’s release in return for freeing two IDF soldiers, Eldad Regev and Ehud Goldwasser, whose abduction by the guerilla organization last summer sparked the Second Lebanon War.

Dekel, a former deputy head of the Shin Bet security service, also met recently with senior Hamas members jailed at the same prison, Haaretz reported last week.

Al-Ayyam said Dekel met with Kuntar privately and told him there is progress in negotiations with Hezbollah, which he said are being conducted via German mediation. There were delays, Dekel said, due to Hezbollah’s demand that Israel free Palestinian prisoners.

Shlomo Goldwasser, Ehud’s father, said in response to the reports that “any move that aids in the release of our sons is a blessed one, and we hope for the best.” Goldwasser told Haaretz that the family members of the two soldiers received no official conformation of the progress in the prisoner swap talks. “I know who we are dealing with, and Nasrallah is still dictating the terms,” Goldwasser added.

Goldwasser is scheduled to join a group of representatives of the abducted soldiers’ families in Europe on Sunday, ahead of a series of meetings with European officials. The representatives are scheduled to meet French President Nicolas Sarkozy on Monday to request France’s help in obtaining information regarding the fate of Regev and Goldwasser and securing the freedom of IDF Cpl. Gilad Shalit.

A rally in support of the families and the release of the abducted soldiers is scheduled to take place in Paris on Sunday.

Hamas is requesting that members of its military wing’s leadership jailed at Hadarim be released as part of a deal for Shalit, who was kidnapped by Gaza militants in a June 2006 cross border raid.