The identity of the Israeli body, that has arrived at the border in an ambulance accompanied by Hezbollah vehicles, was unclear.

Al Jazeera's Rula Amin said from the Naqoura crossing that the body handed back to Israeli authorities was a civilian who died at sea and was washed up in Lebanon.

Captured troops

Last year's conflict began after the Lebanese movement captured Eldad Regev and Ehud Goldwasser, two Israeli troops, and early reports had suggested that the remains being released were from a soldier.

Special report

A series of reports on the Middle East one year after the war in Lebanon

An army report released last December said that the two soldiers were wounded, one seriously and the other only moderately, during their capture.

"We really hope that what happened today will lead to the big deal that will see them come home," Eyal Regev, the brother of Eldad, told Israel's Channel 2 TV.
 
Dozens of people gathered on the Lebanese side of the border waiting for the swap to be completed.

Hussein Wizwaz came to the army checkpoint after hearing from Hezbollah that the body of his son, who was killed in a battle with Israeli troops in the border village of Maroun al-Ras, would be repatriated.

"I heard on television that there will be some prisoner exchange," he said. A Hezbollah official told him that the body of his son as well as that of Mohammed Dimashqiyeh, another fighter, were being returned.

"I wish Samir Kuntar and his comrades would be set free before my son, the martyr, because those who are alive are more important than the martyrs," Wizwaz said.

Prisoner release

In 2004, Israel agreed to free Kuntar as part of an exchange deal which saw nearly 450 prisoners, most of them Palestinians and Arabs, released in exchange for Elhanan Tannenbaum, an Israeli businessman and the bodies of three soldiers

Hezbollah captured two Israeli soldiers in a
cross-border raid in July 2006 [File: AFP]
Kuntar was to be freed at a later date in return for information on the fate of Ron Arad, an Israeli air force navigator who has been missing since October 1986 when his plane was shot down over southern Lebanon.

An Israeli official tolf the AFP news agency that Hezbollah said it would provide information about Arad as part of Monday's deal.
  
Kuntar was jailed for 542 years in 1980 for killing a scientist and his four-year-old daughter as well as an Israeli policeman.

Bassam Kuntar, Samir's brother, told Al Jazeera that the exchange was a victory for Hezbollah and Lebanon.

"I think it is an additional victory for Lebanon and the Islamic resistance because we are speaking about the body of a civilian who was not captured during the July 2006 war," he said. 

Bassam said that Hezbollah would not give Israel any information about the two soldiers captured last July until his brother was released.

Soldiers 'in Iran'

Asharq Al-Awsat, an UK-based Arabic newspaper, reported on Sunday that the two Israelis had been handed to Iran and could be freed as part of a German-brokered exchange.
  
It quoted a source identified as a high-ranking official in the office of Ayatollah Ali Khamenei, Iran's supreme leader, as saying they had been transferred by the country's elite Revolutionary Guards.
  
Last week, Germany decided last week to free an Iranian agent jailed for life for the murder of four Kurdish dissidents in 1992 and the newspaper suggested that this could have been part of the deal.

Rula Amin said Monday's exchange had also been arranged by a German negotiator.

A senior Israeli government official dismissed the Asharq Al-Awsat report as "nonsense" and said it was an "attempt to dissiminate disinformation on this extremely sensitive issue."

Germany also dismissed suggestions that the agent was released as part of a deal with Tehran.