Officials close to the Mideast peace talks say an agreement is emerging that would extend negotiations through 2015 in exchange for the release of an American convicted of spying for Israel in 1987.
The deal would also include the release of hundreds of Palestinian prisoners and a partial freeze on construction of Jewish settlements in the West Bank.
U.S. Secretary of State John Kerry and Israeli Prime Minister Benjamin Netanyahu hammered out details of the plan Tuesday, during their second set of talks in as many days.
Kerry, who also met with Palestinian negotiators, will return to Israel and Ramallah for further talks on Wednesday.
Under the proposed deal, Jonathan Pollard, a civilian intelligence analyst for the U.S. Navy, would be released before the Jewish holiday of Passover, which begins in mid-April.
A Jewish American who was granted Israeli citizenship while he was in prison in 1995, Pollard gave thousands of classified documents to his Israeli handlers. He was arrested in 1985 after unsuccessfully seeking refuge at the Israeli embassy in Washington.
Pollard pleaded guilty to leaking classified documents to Israel and received a life sentence. U.S. President Barack Obama and his predecessors have previously refused to release him, despite pleas from Israeli leaders.
In exchange for his release, Israel would free a fourth group of long-serving Palestinian prisoners, including 14 Arab Israelis whose release is deeply controversial in Israel, as well as 400 other Palestinians who have not been convicted of killing Israelis.
Israel would also agree to "adopt a policy of restraint" in building West Bank settlements. Sources say the limited freeze would not include East Jerusalem, private construction or the building of public institutions.
Palestinian leaders were cool to the emerging proposal, saying it fell far short of their demands for a complete halt to settlement construction and freedom for 1,000 prisoners of their choosing.
The prisoner releases are part of the pact that brought Israelis and Palestinians back to the negotiating table for a nine-month period beginning last July.
The parties involved in the peace effort have not publicly discussed the details of the negotiations, but there has been little visible progress on narrowing gaps on major issues. These include the status of Jerusalem, the fate of Palestinian refugees, borders and security.
Some information for this report comes from AP, AFP and Reuters.