Azzam Azzam waves as he boards a plane in the southern Israeli city of Eilat after his release. (AFP)

Jerusalem, Dec. 5 (Reuters): Egypt sent a convicted Israeli spy home after eight years in jail and Israel released six Egyptian infiltrators today in a sign that relations strained by the Palestinian uprising were warming.

Both cases had elements of the bizarre. Azzam Azzam, an Israeli Arab textile worker, was alleged to have passed messages in women?s underwear using invisible ink. Israel said the Egyptians detained in August had planned to hijack a tank.

By putting the two affairs behind them, Israel and Egypt seemed to be setting the stage for closer security cooperation over Israel?s plan to withdraw from Gaza in 2005, and to advance the prospect of Israeli-Palestinian talks.

Israel said it would consider freeing some Palestinian prisoners, a move that could strengthen moderate Palestinian leader Mahmoud Abbas in his bid to replace late Yasser Arafat as President in a January 9 election.

Shouting ?I am born again?, Azzam, a member of the Druze sect, crossed into Israel from Egypt?s Sinai peninsula hours after the six Egyptian students were returned home.

Azzam was detained in 1996 in Egypt, where he worked in an Israeli-Egyptian textile venture, and sentenced a year later to a 15-year term after being found guilty of spying for Israeli intelligence. Azzam and Israel denied the charges, which included allegations that he had used the invisible ink to communicate with a purported Egyptian co-conspirator.

Sharon?s office called Azzam?s release a ?personal gesture? by Egyptian President Hosni Mubarak, reciprocated by Israel?s agreement to free the infiltrators. Egypt?s state news agency MENA said Azzam had been freed for health reasons.

Sharon said he had thanked Mubarak in a telephone conversation in which they discussed improving relations and expanding cooperation. Israel?s Deputy Prime Minister Ehud Olmert announced that the countries would sign a free trade deal on December 14 that he said could foreshadow ?far reaching changes in the Middle East?.

MENA said Israel had already agreed to free some Palestinian prisoners, and Sharon had agreed to let several Palestinian security men go to Egypt for training, a move that could help his Gaza pullout plan.