Israeli Prime Minister Benyamin Netanyahu has said he is prepared to release 1,000 Palestinian prisoners in exchange for Gilad Shalit.
In a live address on Israeli television, Mr Netanyahu said he was ready "to pay the price" of releasing the prisoners, but would not allow them to return to the West Bank and would not set free "arch-terrorists".
He has come under increasing pressure from Shalit's family. More than 10,000 supporters of the family marched in Netanya on Friday morning as part of a 12-day protest march to Jerusalem.
Last week's fourth anniversary of Shalit's capture by Hamas has sparked renewed calls for the government to do more to secure his release.
Mr Netanyahu said: "I look into the pained eyes of Shalit's family and feel the pain with them. The call to pay any price is a natural cry from the hearts of his fathers, mothers, grandparents, brothers and sisters. As a brother, as a father, as a son, I understand this cry from the depths of my heart. But before me I see the security of all the state's citizens.
"The state of Israel is willing to pay a heavy price for the release of Shalit, but it cannot say 'at any price'.
"The German mediator's offer which we agreed to accept called for the release of 1,000 terrorists. This is the price I am prepared to pay to bring Gilad home. I said yes to the deal and it is ready for immediate implementation."
Intense negotiations between Israel and Hamas, brokered by Germany, broke down earlier this year. Stumbling blocks included an agreement over which Hamas prisoners would be released in the deal, and Israel's insistence on them returning to Gaza or another country.