Last week Ofer Dekel, the Israeli official charged with negotiating the release of abducted Israel Defense Forces soldier Gilad Shalit, visited Cairo to be briefed by Egyptian officials on their proposal for a prisoner exchange with Hamas. Thursday, a ministerial committee headed by Vice Premier Haim Ramon agreed to draw up a new list of 450 Palestinian prisoners that Israel would be willing to release in the exchange. The new list will include 250 of the approximately 350 prisoners whose inclusion in the deal Hamas has demanded.
Ostensibly, differences between Hamas and Israel on this issue have never been smaller. However, Egypt's insistence on a broader package deal, whose details were published in the daily Maariv Thursday, may yet thwart the exchange.
Egypt wants to combine Shalit's release, for which Israel would pay by freeing hundreds of Palestinian prisoners, with an agreement between rival Palestinian factions Hamas and Fatah over the formation of a new coalition government. Egypt's plan would require Hamas to relinquish sole control of the Gaza Strip and agree to allow a peacekeeping force comprised of Arab soldiers to be stationed there, while Israel would have to allow the border crossings into Gaza to reopen. Thus Egypt's proposal would turn Shalit into a pawn in talks aimed at reaching an internal Palestinian reconciliation whose chances of success are slim.
Egyptian officials are certain that Hamas would be willing to relinquish its control over Gaza and form a coalition with Fatah if the price were not too high, and that it would then agree to a deal for Shalit's release. But Cairo may have misjudged the change that the Hamas leadership has undergone in the past months, which greatly diminishes the chances of forming a coalition government.
The group's overseas leadership, headed by Khaled Meshal, has been losing control, while the power held by the Islamic group's young activists in Gaza has grown. Members of the group's military wing have infiltrated its "politburo" in Gaza and have seized authority from senior officials who were considered to be relative pragmatists. Officials like Razi Hamed and Ahmed Yousef have been sidelined. Nowadays, Hamas officials are more likely to march to the tune of the military wing, which instigated the violent takeover of Gaza from the Palestinian Authority in June 2007.
New members of Hamas' leadership who are not part of the military wing are also far from providing a moderating influence. Nizar Riyan, for instance, has seen his power increase because of his extremism and his hatred for the PA leadership in the West Bank.
In sum, it is difficult to imagine the radicals in Hamas giving up their complete control of Gaza in order to create a coalition government.
The military wing is also morphing. It is no longer a hierarchal entity headed by a "chief of staff," Ahmed al-Jabari. Instead, it has fragmented into sectors whose commanders govern like little emirs. These commanders have the authority to forge alliances, political and military, in order to solidify Hamas' control of the Strip and reduce friction with other military groups. However, some of them have used their increased autonomy to make alliances with organizations like al-Qaida, the Army of Islam and the People's Army.
Last week, Hamas killed seven members of the Army of Islam, but it has refrained from confiscating the weapons of factions identified with al-Qaida. So long as these factions do not threaten Hamas, they are allowed to keep their weapons and train their forces.
Internal strife within Hamas - the internationally outlawed terrorist organization that took over the Palestinian Authority following elections earlier this year - has never been more intense. Hamas leaders in Gaza have all but agreed to form a unity government with Fatah, its older and externally more moderate sister, but the Damascus-based leadership doesn't like the idea at all. 
Another obstacle placed before a unity government has come from the other side of the political spectrum - U.S. President George Bush. Bush announced Monday night that he would not recognize the PA government if its guidelines do not include the Quartet's three conditions: recognition of Israel, fulfillment of previous agreements with Israel, and an end to terrorism. The past few day have seen the circulation of several rough copies of an agreement under consideration by Haniye and Abbas. Jerusalem intelligence reveals that the most accurate version, the one agreed upon most recently, was never shown to the U.S. by the PA negotiators. Instead, the Arabs showed the Americans a copy stating that the government will accept the Saudi peace plan of 2002 and the Prisoners' Document, but with the following critical caveat deleted: "As long as this does not clash with Palestinian interests." 
Huberman reports in the name of Jerusalem sources that the inclusion of this sentence essentially voids any Hamas consent to enter a diplomatic process with Israel. PA sources say the negotiations have not yet been finalized, and that there is therefore no final rough copy of the agreement. Hamed said, "There is a strong desire of the various Palestinian factions and groups to reach a national unity government... Hamas will not renege on any declaration it has made before now." He acknowledged that there were some issues not yet finalized in the unity negotiations.