'Israel will not free Palestinians now'

Following his first formal meeting with Abbas on December 23, Olmert had suggested such a release could happen as a way to strengthen Abbas and cement hopes of a revival in peacemaking even before militants in Gaza free a captured Israeli soldier.

But the sources said that Olmert did not have sufficient support in his cabinet for the move ahead of the holiday, which starts on Saturday, and had also faced criticism from the family of the soldier held in Gaza, Corporal Gilad Shalit.

"It does not look as though there will be anything before Shalit is out," said one political source.

An official in the prime minister's office said no decision had been taken yet on when prisoners might be freed.

At this stage, there had been no expectation that a large number of the Palestinian prisoners held by Israel, estimated at up to 11,000, might be released.

But even a symbolic release could help to shore up Abbas, a moderate. He is caught in a power struggle with the governing Hamas Islamist group, which trounced his Fatah movement in January elections. Abbas has said he wants new elections as a way to end a crippling Western embargo on Hamas.

"It's very unfortunate that prisoners will not be released before the feast," said Saeb Erekat, top Palestinian negotiator and a close aide of Abbas.

Erekat said Olmert had agreed at the summit to study the possibility of freeing prisoners before the Muslim holiday of Eid-ul-Azha, which runs from Saturday to Wednesday, but had not made a commitment to do so.

There is still no immediate sign of a deal for the release of Shalit, who was captured by Hamas's armed wing and two other groups.