An exchange of prisoners has been agreed between Israel and the Lebanese militant group Hezbollah, both sides have confirmed.
Elhanan Tannenbaum was kidnapped in October 2000
Under the deal, Hezbollah must first hand over an Israeli businessman and the bodies of three Israeli soldiers.
About 30 Arab detainees are then expected to be freed by the Israelis initially. Hundreds of other Arab releases could follow.
Negotiations for the German-mediated swap have been going on for months.
Israeli lawyer Zvi Rish, who represents two of the most prominent Lebanese prisoners to be released - Sheikh Obeid and Mustafa Darani - said the swaps could begin as early as Tuesday, but neither side has confirmed this.
German official Ernst Uhrlau said the first phase of the deal would be for Israel to release about 30 Lebanese and other Arab prisoners, once Hezbollah frees Israeli businessman Elhanan Tannenbaum and returns the bodies of the Israeli soldiers.
At a later stage, Israel may release some an additional 400 Palestinian prisoners.
"With this agreement Israel and Hezbollah have achieved a
breakthrough in seeking to soothe one of the most painful
consequences of the Middle East conflict," a German statement was quoted as saying.
Israeli newspaper Haaretz reported that Israel will, in addition, give Lebanon information on more than 20 missing Lebanese citizens.
It will also hand over the bodies of 59 Lebanese citizens killed in action against Israel, as well as military maps of mines along the border between Israel and Lebanon.
Israeli pilot Ron Arad's plane was shot down in 1986 in Lebanon
The Israeli cabinet narrowly approved the prisoner exchange last November, but Hezbollah leader Sheikh Hassan Nasrallah rejected the deal.
He had demanded that Lebanese militant Samir Kantar - who was jailed in 1979 for killing an Israeli family - be released.
Israeli Prime Minister Ariel Sharon has specifically rejected any release for Kantar.
However Israeli media reported that Kantar may be released, but only if Israel receives significant information on missing Israeli airman Ron Arad, who was shot down over Lebanon in 1986.
The Israeli soldiers were seized by Hezbollah guerrillas on the northern border with Lebanon in October 2000.
Mr Tannenbaum, a reserve colonel in the Israeli army, was kidnapped by Hezbollah at about the same time.
Thirteen months later, the Israeli Government declared the three soldiers dead.