JERUSALEM/TABA, Egypt (Reuters) - Egypt released an American-Israeli it held as an alleged spy and Israel freed 25 Egyptians in a prisoner swap Thursday that will ease strains between Cairo's new rulers and the United States and Israel.
Ilan Grapel, 27, flew to Israel accompanied by two Israeli envoys sent by Prime Minister Benjamin Netanyahu. The Israeli leader later greeted him at his Jerusalem office and exchanged a firm handshake but few words for the cameras.
Smiling, Grapel embraced his mother who waited on the tarmac at Tel Aviv's Ben Gurion Airport after he climbed out of a private jet with Netanyahu's envoys.
The freed Egyptians crossed overland into Egypt's Sinai desert, some of them kneeling in a thanksgiving prayer.
Egypt arrested Grapel in June on suspicion that he was out to recruit agents and monitor events in the revolt that toppled Hosni Mubarak, an ally of Israel and the United States.
Israel denied that Grapel, who emigrated from New York in 2005 and was wounded as an Israeli paratrooper in the 2006 Lebanon war, was a spy. His links to Israel were apparent on his Facebook page, which contained photos of him in Israeli military uniform.
A law student in the United States, Grapel had been working for Saint Andrew's Refugee Services, a non-governmental agency, when he was detained.
The United States, which provides the army that now runs Egypt with billions of dollars in military aid, had called for Grapel's release. He was freed three weeks after U.S. Defense Secretary Leon Panetta visited Egypt.
The U.S.-brokered exchange deal was reached shortly after a more high-profile, Egyptian-mediated swap between Israel and Gaza's Hamas Islamist rulers freed captive Israeli soldier Gilad Shalit in exchange for more than 1,000 Palestinian prisoners.
Eli Avidar, a former diplomat who headed Israel's mission in Qatar, said securing the release of Egyptian prisoners could help Cairo's new leaders domestically.
"The Egyptian administration needs this for its prestige," he said on Israel Television.
Israel is widely unpopular in Egypt, which signed a peace treaty with its northern neighbor in 1979.
In September, Israel flew its ambassador out of Egypt when the Israeli embassy was attacked by protesters angry at the killings of Egyptian border guards when Israeli troops pursued raiders who killed eight Israelis in August. Israel said the gunmen infiltrated from the Gaza Strip via the Sinai.
Many of the prisoners on the release roster were jailed for drug trafficking, infiltration into Israel and gun-running, but not for espionage or attacks on Israelis, Israel's Prison Service said.
"Raise up your heads, you are Egyptian," cried relatives waving the country's red, white and black flag as the bus carrying the men crossed the border.
"I've been in jail since 2005. Thank God. I feel reborn," Mursi Barakat told Egyptian state television. "The treatment in jail was very tough and it was clear there was discrimination."
U.S. Congressman Gary Ackerman (D-New York) who pressed for Grapel's release, traveled to Israel to accompany him back to the United States, his office said in a statement.
"Congratulations, great work, thank you for everything," Ackerman told Netanyahu when he accompanied Grapel and his mother to the meeting in Jerusalem.
Israel has also called for steps to help free another Israeli, Oudeh Suleiman Tarabin, jailed by Egypt.
Egypt's South Sinai governor Khaled Fouda told reporters after the hand over: "This is the biggest prisoner swap deal since 1948 ... There will be more deals in the future."
Amos Gilad, a senior Israeli Defense Ministry official, rejected arguments by right-wingers in Israel that it had capitulated to Egypt in the 25-1 exchange.
"The bottom line is you have to decide, will he (Grapel) stay there in prison, or not? If you ask, me, he needed to be freed," Gilad said on Israel Radio.
Additional reporting by Dan Williams and Ori Lewis in Jerusalem and Shaimaa Fayed and Omar Fahmy in Cairo; Writing by Jeffrey Heller and Edmund Blair