The Israeli Prime Minister, Mr Ariel Sharon, is considering releasing Islamic militant prisoners to advance the US-backed "road map" to peace with the Palestinians.
Mr Sharon and Palestinian counterpart Mr Mahmoud Abbas are to meet next week before separate visits to Washington at the end of the month.
US President George W. Bush has voiced some support for Mr Abbas's demand that Israel release 6,000 Palestinians arrested during the 33-month-old uprising that the road map hopes to end with a promise of statehood in the West Bank and Gaza Strip by 2005.
Prisoner amnesty is not stipulated among the plan's measures, but Palestinians suffering economically from the loss of their menfolk maintain it is crucial to peacemaking.
Israel has previously agreed to release several hundred "minor offenders" but has ruled out Hamas and Islamic Jihad militants sworn to the Jewish state's destruction and linked to dozens of suicide bombings.
Israeli diplomatic sources said today that hundreds of Islamic militants, not accused of direct involvement in attacks, could also be freed. "The prime minister is thinking of expanding the criteria as a goodwill gesture," one said.
Palestinians welcomed the report. "If this is true, this would be a positive step and we consider it helpful tomaintaining the calm," Information Minister Mr Nabil Amr said.