Gilad Shalit is coming up to his 1,000th day in captivity in Gaza
Israeli Prime Minister Ehud Olmert has said that Hamas's terms for swapping captured soldier Gilad Shalit for Palestinian prisoners are unacceptable.
He spoke after senior Israeli envoys returned from indirect talks with Hamas in Cairo without a deal.
One of his ministers accused Hamas of raising its demands to a level no Israeli government could accept.
Hamas played down suggestions a deal had been close and said it had not changed its conditions.
Israel accused the Palestinian militant group of hardening its position on the proposed prisoner exchange.
The talks were part of a final push by the outgoing Israeli prime minister to secure a deal before he left office.
The young soldier's father, Noam Shalit, acknowledged he would not see his son again soon.
"This government, it seems, will not be able to bring Gilad back," he said.
'We have red lines'
Gilad Shalit, then a corporal, was captured by Palestinian militants from Gaza, including some from Hamas's armed wing, in a cross-border raid in June 2006.
Israel holds thousands of Palestinians prisoner accused of militant activity
Two other troops and two militants were killed in the raid. Gilad Shalit has since been promoted to the rank of sergeant.
Egypt has been brokering the indirect talks.
Hamas has been demanding the release of more than 400 of the thousands of Palestinian prisoners held by Israel.
In a television address, Mr Olmert accused Hamas of making additional demands.
"We will not agree to the release of additional prisoners from Hamas's list above and beyond the hundreds that we have already agreed upon and informed Hamas about," he said.
"We have red lines, and we will not cross them. We are not a defeated nation."
Daniel Friedman, the Israeli justice minister, said Hamas had wrecked a possible deal by making unrealistic demands.
"The prime minister was prepared to make far-reaching concessions, far beyond what some other ministers were willing to do," he said.
"That being said, Hamas's demands reached such proportions that we believe no Israeli government could accept them."
A senior Hamas official, Osama Hamdan, said Israeli negotiators had brought no new proposals to the talks.
He suggested the Israelis appeared to believe Hamas would accept any offer ahead of the formation of a more hardline government in Israel by right-wing prime minister-designate Benjamin Netanyahu.
Among the prisoners Hamas wants to be freed are senior militants who have been involved in deadly attacks on Israeli civilians.
Reports from the talks say one of the issues dividing the sides was Israel's wish to deport some of these prisoners, fearing they would be a security risk if released in the Palestinian territories.
Hamas representatives have said the group rejects the deportation proposal on principle.
Mr Olmert had made the release of Sgt Shalit a major issue of his premiership.
Sgt Shalit's family and supporters have said they fear a harder-line cabinet led by Mr Netanyahu may be less likely to do a deal.
The Shalits set up a tent in front of Mr Olmert's house last week, escalating their campaign after the prime minister said demonstrations calling for Sgt Shalit's release were unhelpful.
Nothing has been heard from the Israeli conscript since June 2008, two years after his capture, when a letter in his handwriting was delivered to the Carter Centre in Ramallah in the West Bank.