The Israeli cabinet has narrowly approved a prisoner exchange with Lebanon-based Hezbollah guerrillas.
Elhanan Tannenbaum was kidnapped in October 2000
Under pressure from Prime Minister Ariel Sharon, 12 ministers voted for the accord, while 11 opposed it.
Israel is to hand over about 20 Lebanese and 400 Palestinian prisoners in return for an Israeli businessman and the bodies of three soldiers.
Mr Sharon says he will not free a top Lebanese militant, prompting Hezbollah to threaten to reject the deal.
Israeli businessman Elhanan Tannenbaum, who is also a reserve colonel, was kidnapped by Hezbollah in 2000.
Israeli media say information on the fate of missing airman Ron Arad - shot down over Lebanon in 1986 - is also expected to be included in the deal.
Israel is holding about 20 Lebanese detainees, including Shia Muslim leaders Abdel Karim Obeid and Mustafa Dirani, who is reported to have been directly involved in Arad's capture.
The cabinet was almost evenly split on what has become one of the most divisive issues in Israel, says the BBC's David Chazan in Jerusalem.
The Israeli prime minister put his ministers under pressure to vote in favour, despite his stated policy of refusing to deal with those Israel considers terrorists, our correspondent says.
The 11 ministers who voted against the German-mediated exchange argued that it could strengthen Hezbollah and encourage militants to kidnap more Israelis.
And it is far from certain that the swap will go ahead.
The cabinet is reported to have ruled out releasing those convicted of killing Israelis, but the leader of Hezbollah, Sheikh Hassan Nasrullah, says he will reject the deal unless all the Lebanese prisoners are set free.