Palestinian leader Mahmoud Abbas says a deal could be "imminent" to free an Israeli soldier held for more than a month by militants in the Gaza Strip.
Gilad Shalit was the gunner on a tank when it was attacked
Cpl Gilad Shalit, 19, was seized in an attack on an Israeli military post near Gaza on 25 June.
The armed wing of militant group Hamas swiftly rebutted Mr Abbas' comments.
Israel has launched regular air strikes and military incursions into the Gaza Strip to try to force the soldier's release, killing 140 Palestinians.
One Israeli soldier has also been killed in action.
Mr Abbas spoke in Rome at a news conference with the Italian Prime Minister Romano Prodi.
"I told the prime minister that as far as the question of the abducted Israeli soldier is concerned efforts are undergoing continuously that lead us to believe that the solution will be imminent," he said.
But a spokesman for the armed wing of Hamas, the faction that dominates the Palestinian legislature, said: "Nothing has changed in the case of the Israeli soldier," Reuters news agency reported.
Palestinian negotiator Saeb Erekat also played down Mr Abbas' comments, suggesting that they had been taken out of context.
"I do not think that the president meant to say that the release was imminent. Efforts are being exerted but I wouldn't jump to any premature conclusions at this stage," he told CNN.
Cpl Shalit was abducted when Palestinian militant groups launched a surprise joint assault on an Israeli army position at Kerem Shalom, just outside the Gaza Strip.
Two soldiers were killed in the attack, and Cpl Shalit was seized and taken back into Gaza.