Israel's military said it began digging up the bodies of Lebanese fighters Monday after the government struck a deal with Hizbullah guerrillas to swap five living prisoners and dozens of bodies for two Israeli soldiers captured in 2006.

Israel said in a statement that the swap agreement was signed "in the presence of a U.N. representative." Implementation of the deal depends on carrying out further steps, the statement said without providing specifics.

Hizbullah officials refused to comment.

Israel approved the swap June 29. It will hand over Samir Qantar, serving multiple life terms for a 1979 attack in Israel's north, as well as four Hizbullah prisoners and dozens of bodies of fighters. In return, Israel is to receive two soldiers captured by Hizbullah in a 2006 cross-border raid that set off a fierce 34-day war.

Israeli Prime Minister Ehud Olmert declared the two soldiers dead before his Cabinet approved the deal, but Hizbullah leader Sayyed Hassan Nasrallah, who has not allowed Red Cross visits or given any sign that the two are alive, called the declaration "speculation."

Israeli military officials said the exchange was likely to take place sometime during the four days beginning Sunday.

The military confirmed that the process of exhuming bodies had begun at the Amiad cemetery for enemy combatants, not far from the Israel-Lebanon border. It was declared a closed military zone to prevent reporters from witnessing the process. The military rabbinate called up reservists to help with identifying the bodies before the exchange.

Channel 10 TV showed video of about a dozen workers in white protective suits digging in the cemetery, before a soldier put his hand in front of the camera lens and stopped the filming.

In another aspect of the agreement, mediated by a U.N.-appointed German official, Hizbullah has compiled a report on the fate of Ron Arad, an Israeli airman captured alive after his plane was shot down over Lebanon in 1986.

Israeli negotiator Ofer Dekel was in Europe on Monday to pick up the report, the military officials said.

However, in announcing the signing of the swap agreement, government spokesman Mark Regev added, "so far we have not received the report concerning the fate of our missing navigator, Ron Arad. When that report is received, we will have discussions inside the government on how to move forward."

Regev would not say where the signing took place.

On Friday, the Israeli daily Haaretz reported that Israel had received the report about Arad and added that the airman had been dead for more than 10 years.

In exchange for the report on Arad, Israel is to provide information on four Iranian diplomats who disappeared in Lebanon in 1982.

Iran, which supports Hizbullah, claims the officials were kidnapped by Lebanese Christian militiamen and delivered to Israeli troops. Israel has long denied holding them.(AP-Naharnet)