Aljazeera.net has seen documents aimed at achieving a prisoner exchange, ceasefire and continuing negotiations with Hamas.
The initiative was drawn up by Menachem Froman, the rabbi of Tekoa, a friend and associate of Yasser Arafat, the late Palestinian president, and Sheikh Ahmad Yasin, the spiritual leader of Hamas assassinated by Israel in 2004.
The plan was submitted to the Hamas leadership in the Gaza Strip and Damascus by the Egyptian diplomatic mission in July.
It has the blessing of senior Jewish religious figures, including Shlomo Amar, the chief rabbi of Israel, and Ovadia Yosef, the spiritual leader of the Shas party.
But while the Israeli government has been following the progress of the initiative, its apparent strategy to force Hamas's hand by detaining its leadership and making civilian life in Gaza intolerable threatens to push any deal out of reach.
The peace initiative envisions a face-to-face meeting in Gaza between Ismail Haniya, the Palestinian prime minister, a delegation of rabbis and Abdallah Darwish, the spiritual leader of the Islamic Movement in Israel.
This would provide a crucial springboard for the plan because the Israeli and Hamas administrations are politically unable to meet each other.
Israeli raids into Gaza are
hampering the plan
A formal ceasefire announcement would then be accompanied by a form of prisoner exchange involving women and those needing medical attention currently being held in Israel. That would lead to a full negotiating process covering settlements, Jerusalem, refugees and the establishment of a free Palestinian state.
However, Hamas says that Israel's ongoing military operation in the Gaza Strip is preventing progress.
Ghazi Hamad, the spokesman for the Hamas government in Gaza, confirmed the existence of the plan, and its potential to end the current fighting.
"I have talked to Rabbi Froman many times and I think that there is a good chance for this [peace proposal]," he said. "But first, we need the situation here to be calm and quiet.
Rabbi Froman with Darwish (left)
"We are trying to prepare the situation in order to find a time that we can contact all the parties in Gaza," he said.
"But the military tension caused by the daily incursions and deaths is making it impossible to speak normally with people here."
B'tselem, an Israeli human rights group, says that more than 191 Palestinians, more than half of them civilians, have been killed since Israel invaded the Gaza Strip on June 28, in a nominal bid to free Corporal Shalit.
Despite the ongoing incursion, Rabbi Froman remains optimistic.
He says that he has received encouragement from direct talks with figures including Amir Peretz, the defence minister, Eli Yishai, the trade minister, and Moshe Katsav, the Israeli president.
But he is at pains to point out that he is operating independently.
"In the best case, we would announce a ceasefire - we Rabbis in the name of the people of Israel, they in the name of the Palestinian people. They would
bring the boy [Shalit] and we would bring from our side a group of Palestinian prisoners, perhaps the women, and those ill prisoners who need medical treatment"
Rabbi of Tekoa
"I am not working as an agent of the state or as a representative of the Zionists," he said.
"I am a citizen of the kingdom of God, not of the state of Israel. My motivation is to give glory to Allah and to do this, I am trying to convince public opinion in Israel that we need to give legitimacy to Hamas."
It is indicative of the tightrope Froman is walking that despite this, he says that Ehud Olmert, the Israeli prime minister, has given unofficial support to the initiative through a senior aide and is being updated on the situation "every step of the way".
However, the first step - a meeting in Gaza - is proving the hardest.
According to the Froman plan, Haniya, the rabbis and Abdalla Nimr Darwish would meet in Gaza to announce that "the two peoples are willing to establish a just peace".
On the phone, Hamad, reiterated that Israel's military escalation had made this difficult.
But he confirmed: "We have talked about extending an invitation [to Froman] to meet the prime minister, Ismail Haniya."
Thus far, no invite has been offered.
Froman believes the current impasse is a chicken and egg situation.
"My premier sees this [Gaza incursion] only as a reaction to the Qassams," he said.
"Ghazi is talking about a daily aggression against the Palestinians, but my prime minister is waiting to see if Haniya invites me. The minute that he does, Tsahal [the Israeli army] will stop the attacks, not only from the time we meet, but from the minute that the invitation is announced. That will be the step towards the Palestinians, and there will be a total stop to aggression in the Gaza Strip if there is a hudna [ceasefire]."
The second step outlined in the plan could be even trickier - for both sides.
It involves Jerusalem being recognised as a "City of Peace" for both peoples. To achieve this, the document says, "the two sides must announce a ceasefire [and] release of all prisoners" with priority being given to those needing medical treatment, such as Corporal Shalit.
"The next phase, assuming the truce is maintained, will include the freeing of Palestine - and all the Palestinian prisoners, in stages."
Froman insists he has received assurances that if invited to Gaza, he will be authorised by Olmert to bring a "very generous offer" with him, conditional on a ceasefire being announced.
"In the best case," he says, "we would announce a ceasefire - we rabbis in the name of the people of Israel, they in the name of the Palestinian people.
"They would bring the boy [Shalit] and we would bring from our side a group of Palestinian prisoners, perhaps the women, and those ill prisoners who need medical treatment."
The next phase, according to the document, would allow for more detailed negotiations.
Under the plan the truce "will give the opportunity for both sides to embark on a process of negotiations covering all the suspended issues such as settlements, [a Palestinian] right of return and Jerusalem, in the hope of rapidly reaching a solution enabling the establishment of a free prosperous Palestinian state side by side with the Israeli state".
The document notes that an immediate work plan has already been forwarded to the Hamas leadership in Damascus following a meeting with the (currently imprisoned) West Bank Hamas leader, Asad Farhat.
Cooperation between Abbas and
Haniya is also seen as crucial
It goes on to entrust Haniya, with negotiating responsibilities "because he and his cabinet members have stronger relations with the kidnappers of the Israeli soldiers and the launchers of the rockets than the PA President [Mahmoud] Abbas".
However, cooperation between Abbas and Haniya is seen as necessary to ensure that the desired truce includes all Palestinian factions and forces.
The lost trust
But perhaps the biggest obstacle Rabbi Froman's peace plan will face is persuading the Hamas administration that the Israelis can be trusted to negotiate in good faith.
The first attempt to launch the initiative took place on June 26 at a public platform in Jerusalem with the Hamas MK Muhammed Abu Tir and Palestinian minister for Jerusalem Khalid Abu Arafa.
It was scuppered before it had even begun when the Shin Bet allegedly detained both men and warned them not to attend.
Two days later, the two men were arrested by Israeli forces, along with a third of the Hamas cabinet.
Shortly afterwards, on June 30, Israel revoked both men's citizenship and residency rights in Jerusalem, as the onslaught in Gaza intensified.
The tragic cycle of events that action triggered has claimed many hundreds of Palestinian, Lebanese and Israeli lives.
Still, Rabbi Froman waits in his Tekoa settlement for a phone call, praying that those responsible may yet be persuaded to return to a peace proposal apparently sabotaged in favour of a war that everyone is still losing.