Nasrallah said in an interview with the Hezbollah television station, Al-Manar, that a negotiator appointed by Kofi Annan, the United Nations secretary-general, has been meeting both Hezbollah and Israeli officials.
He would not provide details about the negotiations, but said that both sides had "reached a stage of exchanging ideas, proposals or conditions".
"They are serious negotiations. It's better to keep it away from the media [but] this issue is on track and we are moving ahead," he said on Tuesday.
Nasrallah has offered to exchange the two for Arab prisoners in Israeli jails, but Israel has repeatedly refused.
Although the UN resolution that ended the 34-day war called for the soldiers' unconditional release, Israel has exchanged prisoners in the past.
Hezbollah fighters captured the two soldiers on July 12 in a cross-border raid which also left eight Israeli soldiers dead.
More than 1,200 Lebanese, mostly civilians, died in the ensuing Israeli offensive, while 157 Israelis, mostly soldiers, died in combat or in rocket attacks by Hezbollah on northern Israel.
Nasrallah also said that his group has reinforced its arsenal of rockets - numbering some 33,000 - and said that any attempts by an international force to disarm it would transform Lebanon into another Iraq or Afghanistan.
"The resistance in Lebanon is strong, cohesive, able and ready and they will not be able to undermine it no matter what the challenges are," he said.
The interview was broadcast hours after Israeli warplanes staged mock raids over south Beirut and two southern Lebanese towns in the strongest show of force since the Israel-Hezbollah war ended with a UN-brokered ceasefire on August 14.