Prime Minister Ariel Sharon lobbied hard for the swap, which excludes Israel's most famous MIA, airman Ron Arad, who was shot down over Lebanon 17 years ago. The vote was one of Sharon's toughest leadership tests in three years.
Despite the narrow approval, the deal exchange could still collapse — and the Lebanese guerrilla group threatened Sunday to kidnap more Israelis if that happens.
After the Cabinet session, the government for the first time confirmed the parameters of the exchange, widely reported on in the past.
About 400 Palestinians and several dozen prisoners from Lebanon, Syria, Morocco, Sudan and Libya will be released in exchange for Israeli businessman Elhanan Tannenbaum and the bodies of three Israeli soldiers.
The deal might not have an immediate effect on the Israeli-Palestinian conflict. However, it could further boost Hezbollah's popularity among Palestinians and reinforce a widely held belief that Israel only responds to force.
Israel's withdrawal from Lebanon in 2000, after a long guerrilla war with Hezbollah, was seen as one cause for the outbreak of the Palestinian uprising.
In Sunday's session, the ministers voted without knowing the names of most of those to be released, but were assured that — with the exception of several Lebanese prisoners — they would not have been involved in killing Israelis.
This would presumably preclude the release of Palestinian uprising leader Marwan Barghouti, who stands accused by Israel of a role in attacks that killed 26 Israelis. Palestinian sources have said they expected Barghouti to be released.
Palestinians reacted with disappointment Sunday.
Issa Karake of the Palestinian Prisoners Association said he had hoped those with life terms would be among those freed. "If this standard (of not having killed Israelis) is applied, the deal will lose its value because the long-serving prisoners are those who carried out operations in which they killed Israelis," he said.
More than 7,000 Palestinians are held by Israel, most of them rounded up in Israeli military raids in the past three years of fighting. The release of prisoners is a top priority for the Palestinian Authority, but the Sharon government has freed only a few hundred, most of whom were nearing completion of their terms. That helped spark the resignation of reformist Palestinian premier Mahmoud Abbas two months ago.
The Hezbollah leader, Hassan Nasrallah, has said the deal would not go through unless a Lebanese militant, Samir Kantar, was among those freed. Kantar killed an Israeli man and his two children in the 1970s.
However, according to the criteria approved Sunday, Kantar would remain in prison. The Cabinet said several Lebanese who killed Israeli soldiers in south Lebanon would be freed, but not any involved in killing civilians.
Israeli Foreign Minister Silvan Shalom said he opposed freeing Kantar. "Freeing him could lead to demands from other countries to free prisoners with blood on their hands, so the decision taken by Israel is the correct one," Shalom told reporters.
In Lebanon, Mohammed Safa, head of a prisoners' committee, accused Israel of trying to sabotage the deal by excluding Kantar. "Hezbollah cannot accept that and Israel knows it very well," Safa said.
Mohammed Fneish, a Hezbollah legislator, said the group would try to kidnap more Israelis if the deal breaks down. "If the pressure cards we have ... are not sufficient to convince the Israeli enemy's government to respect the freedom of our detainees ..., the Hezbollah command will definitely search for means to force the Israeli enemy's government to release our detainees," he told Al Manar TV.
Sunday's vote came after a charged eight-hour debate, in which three security chiefs — the heads of the army, the Mossad spy agency and the Shin Bet security service — offered conflicting opinions.
The army chief, Lt. Gen. Moshe Yaalon, was in favor, saying the price to be paid was reasonable, while the head of the Mossad, Meir Dagan, warned the exchange would boost Hezbollah's standing in the Arab world.
Sharon brushed aside the criticism, and told ministers that the ailing Tannenbaum — who reportedly was tortured and had all his teeth pulled by his captors — would die in Lebanon if the deal was rejected.
However, opponents said the price is too high. "The message that will be given by a "yes" vote is clear, that kidnapping really pays," said Uzi Landau, a Cabinet minister without portfolio. "I shall vote against."
Israel has carried out lopsided exchanges in the past, releasing thousands of Arab prisoners for several Israeli soldiers.
The deal does not address the fate of Arad, who has become something of an icon — in contrast to Tannenbaum who was lured abroad by Hezbollah, reportedly with a promise of a lucrative business deal to help him cover gambling debts.
Arad's family campaigned heavily against the deal, and in a final push, the airman's wife and daughter gave emotional radio interviews during morning drive time just as the Cabinet ministers were heading to the meeting.
Arad's daughter Yuval, who was 15 months old when her father was captured, told Israel Army Radio her family was giving up hope. "My mother says there is no chance (of Arad returning). Apparently the years and the disappointments have taught her not to hold out hope," she said before the vote.
A member of a government committee that recently investigated Arad's disappearance said Sunday the panel has seen documents indicating Arad is still alive and being held in Iran.
While Arad is not part of the deal, Lebanese guerrilla leader Mustafa Dirani, who captured the airman and reportedly sold him to Iran in May 1988, is to go free — along with another guerrilla leader, Abdel Karim Obeid. Dirani and Obeid were kidnapped by Israeli commandos as bargaining chips for Arad.
Sharon has said Dirani no longer has any value as a bargaining chip. But on Sunday, he said his proposal to the Cabinet would include a series of steps to be taken regarding Arad.