By Allyn Fisher-Ilan
JERUSALEM (Reuters) - Israeli Prime Minister Ehud Olmert on Tuesday rejected Hamas demands to free 450 long-term prisoners in exchange for a captive soldier, signalling his last-ditch bid to resolve the crisis may have failed.
Talks to free Gilad Shalit, seized by Palestinian militants who tunnelled into Israel from the Gaza Strip in 2006, hit an impasse over Olmert's refusal to liberate Palestinians serving life sentences for suicide bombings, a political source said.
The collapse could deal a serious blow to Egyptian-mediated negotiations to cement a cease-fire between Israel and Hamas following the Jewish state's 22-day offensive in the Gaza Strip that ended two months ago.
It could also set back Western efforts to end an Israeli blockade preventing vital goods reaching Gaza, which the Islamist movement controls.
Olmert, who has only two weeks left in office, said Israel's efforts to liberate Shalit would never stop, but made it clear to the nation in a statement broadcast live that his role -- probably the final effort of his premiership -- may now be over.
"We have red lines, we won't cross them," a sombre Olmert said. He said Israel had offered to free hundreds of Palestinian prisoners from its jails for the soldier. "These proposals were rejected. No others will be offered Hamas."
Shalit's parents listened dejectedly to the statement from a tent outside Olmert's office where they keep a vigil for their son's now 996 days in captivity.
Shalit's father Noam said that "instead of making statements" Olmert and his cabinet "should be acting vigorously to achieve real results."
Olmert's spokesman Mark Regev said Israel would continue to make freedom for Shalit a condition for a wider truce with Hamas and the opening of the coastal enclave's border crossings to reconstruction aid.
"Crossings into Gaza are open for humanitarian aid for the people of Gaza," he said. "A widening of the opening of the crossings above and beyond humanitarian aid will require first the release of Gilad Shalit."
Israel accused Hamas of hardening its stance in the negotiations. Hamas, which had opposed including Shalit's fate in the talks, denied any change in its position.
In exchange for Shalit, it has demanded the release of 1,400 Palestinian prisoners, including about 450 long-term inmates. Israel has about 11,000 Palestinians in its jails.
Senior Hamas official Osama Hamdan urged Olmert to "listen to the voice of reason and come back to pursue the talks."
"If the Israeli government sticks to its negative position, it will not be possible to clinch a deal, at least at the present time," Hamdan said. "If Israel wants to reach a deal, it should come with a serious offer."
Israel has made lopsided exchanges in the past, trading many Arab prisoners for a few captured soldiers or even remains.
Olmert must soon hand over to incoming right-wing leader Benjamin Netanyahu, who faces an April 3 deadline to form a new government after an election held on February 10
Netanyahu pledges a tougher line against Hamas.
Olmert's thwarted bid to win Shalit's release has symbolised for many Israelis a troubled three-year premiership punctuated by two inconclusive wars, including a 2006 campaign in Lebanon, and the devastating Gaza offensive in January.
The Gaza campaign was intended to stop Gaza's Islamist militants firing their homemade rockets at nearby Israeli towns, but the rocket fire continues sporadically.
(Additional reporting by Nidal al-Mughrabi in Gaza and Adam Entous in Jerusalem; Writing by Adam Entous and Jeffrey Heller in Jerusalem, Editing by Douglas Hamilton and Charles Dick)