The Saudi newspaper Ukaz on Thursday quoted a Palestinian source as saying that Israel has relayed to Hamas it is ready to release all the Palestinian prisoners the militant group demands in return for kidnapped soldier Gilad Shalit.

According to the source, top Israeli negotiator Amos Gilad has informed Egypt of Israel’s intention to hand over the prisoners.

Israel Radio reported Thursday that Amos Gilad, a senior Defense Ministry official, denied the report, calling it completely untrue.

The Saudi paper further quoted the Palestinian source as saying that once prime minister-designate Tzipi Livni has formed a new coalition, the government will meet to approve the release of 450 prisoners.

In a second stage of the deal, Ukaz reported, Israel will free an additional 550 prisoners.

Gilad Shalit was kidnapped by Gaza militants from his Israel Defense Forces post in a 2006 cross-border raid. He is widely believed to be still held in the Hamas-ruled Gaza Strip.

Earlier this week, it emerged that negotiators involved in the talks over Shalit have said Israel will have to change its criteria regarding the Palestinian prisoners it is willing to release.

The sources said Hamas is insisting Israel agree to release prisoners “with blood on their hands.”