Two Egyptian officials said this morning that the visit of US Defence Secretary Leon Panetta to Cairo should allow for the discussion of a deal over the possible release of Ilan Grapel, the US-Israeli citizen arrested in Egypt a few months ago on espionage charges.

"We are willing to let him go in return for something but the matter is still being discussed," said an Egyptian official who asked for anonymity. The official said that reports suggesting Panetta would take Grapel "home" with him at the end of his visit are "exaggerated."

The possible release of Grapel, the same official said, "would need time." He declined to share a possible date for the release and argued that a deal is not yet done. 

According to another official, the release of Grapel could take place "before the end of this month" provided that a deal is reached. Both officials said that what Egypt wants in return for Grapel is "not at all" the blind radical cleric Omar Abdel-Rahman, who has been imprisoned in the US since 1993 for terror charges. "This is a joke," said one of the officials.  

What Egypt wants in return, they both said, is related to bigger political issues, including US annual aid to Egypt – both economic and military.  

According to one official, "Egypt does not like the new tone of conditionality that seems to be floated in relation to the US aid to Egypt and we clearly wants this language removed."

Both officials said Cairo is keen to clear the air with Washington and Tel Aviv in the wake of tension that has been escalating since the attack on the Israeli embassy last month and the consequent eviction of all Israeli diplomats except one.  

"We are not picking a fight – neither with Israel nor with the US; we want to keep relations non-problematic but this does not mean we are not following the file of the Egyptian guard soldiers who were killed by Israel (during a raid on bordering Gaza)," said an Egyptian diplomat.  

Meanwhile, a security source confirmed Israeli press reports suggesting the resumption of negotiations over the release of Israeli soldier Gilad Shalit in return for the release of Palestinian prisoners. He said, however, that hopes should not be exaggerated over the conclusion of a deal soon.