By Allyn Fisher-Ilan JERUSALEM, Dec 24 (Reuters) - Israel said on Sunday it would consider freeing Palestinian leader Marwan Barghouthi from jail as part of a prisoner exchange deal. The comment by Defence Minister Amir Peretz suggested a change in Israel's longstanding refusal to consider freeing Barghouthi as it tries to bolster President Abbas in his showdown with Hamas. Barghouthi, a popular member of Abbas's Fatah faction, was jailed by an Israeli court for five life terms for ordering attacks as part of the Palestinian revolt against occupation. He denied the charges. The day after Prime Minister Ehud Olmert held a first official meeting with Abbas in Jerusalem, Peretz was asked by Israel Radio if Israel would free Barghouthi as part of a deal to secure the release of an Israeli soldier. "If someone puts a request to release him from prison on the agenda, it should be discussed in accordance with the law," Peretz replied. Pressed as to whether that meant a release was possible, he said: "It's a question of what you would get in return." Olmert has said Israel would free Palestinian prisoners in exchange for the release of Gilad Shalit, a soldier captured in a cross-border raid from Gaza last June. In the past it has opposed freeing inmates with "blood on their hands", but lately it has signalled more flexibility amid pressure from the United States and European powers to help boost the moderate Abbas. At least 10 Palestinians have been killed in violence between forces loyal to Abbas and those of Hamas since Abbas's call last week for new elections in the Gaza Strip and occupied West Bank after talks on a unity government with Hamas failed. FATAH'S BEST CHANCE? Barghouthi, 47, is seen by many as Fatah's best chance in any presidential race against Hamas if Abbas decides not to run. Olmert's talks with the moderate Abbas in Jerusalem were seen as a bid to boost Abbas's standing against Hamas, which came to power in March and has faced a world economic boycott over its refusal to recognise Israel or renounce violence. Abbas faces a difficult balancing act in trying to persuade Palestinians, hard hit by the sanctions, to support his peace agenda without appearing beholden to U.S. and Israeli interests. But while Olmert agreed to free about $100 million in withheld Palestinian tax funds, Abbas made little headway on a key issue for Palestinians -- the release of some of the 11,000 Palestinian prisoners held by Israel. Hamas leaders scoffed at the results of Abbas's meeting with Olmert and many in the Palestinian public also seemed sceptical. Mushir al-Masri, a senior Hamas lawmaker, said Abbas had set a "serious precedent" by agreeing with Israel that it would funnel the $100n million through his office, rather than through the Hamas-run treasury. "The meeting gave the enemy a right they shouldn't have," al-Masri said. Zakaria al-Qaq of al-Quds University said Israel's $100 million pledge might give Abbas a "modest boost", but would not shift the minds of the Palestinian public. "We have kisses without results," said Mohammad, a Gaza shopkeeper. "The kisses and the warm reception serve only one purpose: deepening the Palestinian-Palestinian division." Israel has frozen more than $500 million in Palestinian taxes in total as part of its boycott of the Hamas government. The Israeli cabinet decided on Sunday that a fifth of that sum could be transferred to Abbas once he showed a list of humanitarian needs, a process that could take days or weeks. (Additional reporting by Nidal al-Mughrabi and Mohammed Assadi in Gaza and Wafa Amr in Ramallah)
