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The offer was unconfirmed for a while:
In an interview with Egypt’s leading pro-government newspaper, Al-Ahram, Mubarak said “Egyptian contacts with several Hamas leaders resulted in preliminary, positive results in the shape of a conditional agreement to hand over the Israeli soldier as soon as possible to avoid an escalation. “But agreement on this has not yet been reached with the Israeli side,” Mubarak said.
But now it appears that Israel has rejected the offer:
However, the terms set by the group were rejected by Israel. Egyptian President Hosni Mubarek told the al-Ahram interviewer he warned the terrorist kidnappers to change their “extreme positions” in order to bring the crisis to a close.
I know I will sound callous but Israel did the right thing. They should refuse additional conditional offers as well. Instead, they should keep kicking ass until the terrorists break. And if they don’t break, and Gilad is murdered, destroy Hamas and any other terrorist operatives that can be located. Give them the war they want but can’t hope to win.