CAIRO, Egypt - Israeli Prime Minister Benjamin Netanyahu presented ideas to Egypt yesterday for restarting Mideast peace talks, impressing his hosts with proposals that go further than past Israeli positions, Egypt's top diplomat said.

The meeting took place as a Hamas official said his group had rejected Israel's latest proposal for a prisoner swap with the Islamic extremists. A top Hamas official in Syria said the deal was on hold because Israel was refusing to release key prisoners and insisting on mass deportations of freed extremists.

The peace process and prisoner swaps were high on Netanyahu's agenda yesterday. Egypt, the first Arab country to make peace with Israel, has been a key mediator on both fronts. Germany, at Hamas' behest, is also involved in the mediation.

Israeli-Palestinian talks broke off a year ago, and the two sides are at odds on how to restart them. The issue of Israeli settlements in areas claimed by the Palestinians has been a major sticking point.

Egyptian Foreign Minister Ahmed Aboul Gheit declined to divulge specifics on yesterday's discussions, but he said Netanyahu appeared serious about trying to resume negotiations with the Palestinians.

"The prime minister was discussing positions that surpass in our estimate what we've heard from them in a long time," Aboul Gheit said. "I can't say that he has come with changed positions, but he is moving forward."

After returning home, Netanyahu told a gathering of his Likud Party that he was "very encouraged by the commitment" of Egyptian President Hosni Mubarak "to promote the peace process between us and the Palestinians."

"I expect and hope to see such a readiness from the Palestinian Authority," he said.

Netanyahu jetted in from Israel, joined by his top negotiator, Yitzhak Molcho, for nearly three hours of talks with Mubarak, Egyptian intelligence chief Omar Suleiman, and Aboul Gheit.

Egypt frequently mediates between Israel and the broader Arab world. Aboul Gheit and Suleiman are traveling to the United States next week, while U.S. envoy George Mitchell is expected in Israel around the same time.

In the latest setback for peace efforts, Israel said Monday that it planned to build nearly 700 new homes in East Jerusalem, the section of the holy city that the Palestinians want to make their capital.

Netanyahu has offered a 10-month slowdown on West Bank settlement construction. But the Palestinians say that is insufficient because it does not include East Jerusalem or 3,000 homes already being built in the West Bank.

The Palestinians have also insisted that Netanyahu resume talks from the point they broke off under his more dovish predecessor, Ehud Olmert. Netanyahu has said he is not bound by Olmert's offers - which included proposals for shared control of the holy city of Jerusalem and a broad pullout from nearly all of the West Bank.

Aboul Gheit said Netanyahu gave his hosts the impression that he genuinely wants to get diplomacy moving again. At the same time, he said settlement construction must be halted for negotiations to succeed.

Aboul Gheit also said that Egypt asked Israel to ease restrictions on Palestinians in the West Bank and Gaza, and that Israel promised to take measures to ease freedom of movement.

Also on the agenda were the prisoner-swap talks. Hamas is seeking hundreds of Palestinian prisoners in exchange for Gilad Shalit, a captured Israeli soldier it has held more than three years.

A delegation of Hamas leaders left its Gaza Strip stronghold to discuss Israel's latest proposal with Hamas' exiled leadership in Syria. A top Hamas official in Damascus said the group rejected Israel's latest offer and asked the German mediator to go back to Israel for another offer. Israeli officials had no comment.

Israeli Justices Tell Military To Open Road to Palestinians

Israel's Supreme Court ordered the military yesterday to allow Palestinians to travel on the part of a major highway that runs through the West Bank, handing Palestinians their biggest victory yet against Israel's practice of reserving some roads for Jews.

The West Bank section of a road linking Jerusalem and Tel Aviv was closed in 2002 to Palestinians, after extremists shot at Israeli vehicles on it, killing several motorists.

About half of the 20-mile highway runs through the West Bank. Palestinians living in villages along the route petitioned to reopen it in 2007, as the Palestinian uprising against Israel wound down.

The court said the military lacked authority to impose a permanent and sweeping limitation on Palestinian travel along the West Bank section of the road.

It also said the road closure "does not benefit the local population, from whom lands were appropriated to build it." The judges ruled that security considerations cannot take precedence.

- Associated Press