CAIRO, Egypt – In a series of dramatic steps capped yesterday by a high profile prisoner swap, Israel and Egypt are moving rapidly to improve relations, seizing the opportunity for a Middle East peace deal presented by Yasser Arafat’s death.

A year ago, Egypt’s president dismissed Israel’s prime minister as incapable of making peace. Today, he calls Ariel Sharon the region’s best chance for an end to hostilities. The change in attitude is also apparent in Syria and across the Gulf, as Arab nations signal they are ready to work with Mr. Sharon, a man they long have described as a butcher.

But it was yesterday’s Israeli-Egyptian prisoner swap that provided the most striking example.

The president of Egypt, Hosni Mubarak, made a decision to exchange Azzam Azzam, an Israeli Arab convicted of spying for Israel, for six Egyptian students held by Israel, reversing his government’s long-standing policy – and eliminated a central point of friction between the two countries over the past eight years.

Israel may also release Palestinian Arab prisoners in the future, Mr. Sharon said.

Egyptian officials had accused Mr. Azzam of providing Israel with secrets about Egyptian factories – by giving women’s undergarments soaked in invisible ink to an Egyptian accomplice, who was said to have used the ink to pass on the information.

The six freed Egyptian students had sneaked into Israel in August and were arrested on suspicion they tried to kidnap soldiers and commandeer a tank.

The transfer took place at the Taba crossing between the two countries.

In the past month, Egypt also has made overtures toward returning its ambassador to Tel Aviv, four years after it summoned the ambassador home to protest what it called excessive Israeli force toward Palestinian Arabs.

Relations between Israel and Egypt, the first Arab nation to recognize the Jewish state in 1979, have been particularly cold during Mr. Sharon’s tenure and during the past four years of Palestinian-Israeli violence.

The recent warming appears to be a way to prepare the political ground – and the Arab and Egyptian public – for Israeli-Egyptian cooperation toward a broader peace.

Syria also has indicated a fresh willingness to negotiate a peace deal with Israel, and the Bahraini foreign minister said recently that peace was within reach.

Last week, in another striking departure, Mr. Mubarak said that if the Palestinian Arabs could not achieve progress in Mr. Sharon’s time, it would be very difficult afterward.

“He is capable of pursuing peace, and he is capable of reaching solutions, if he wants to,” Mr. Mubarak said. In October 2003, Mr. Mubarak had dismissed Mr. Sharon as a man having no “intention to start working for peace.”

Gamal Abdel Gawad, an expert at Al-Ahram Center of Strategic Studies in Cairo, said Egyptian policies toward Israel are taking “a new, more realistic turn.”

“This is a complete departure from the old concept. It will certainly set the stage for a more dramatic improvement,” he said.

The Israelis have certainly noticed the shift.

A leading Israeli newspaper, Yediot Ahronot, described the overtures as “a new atmosphere” and a “honeymoon.” Shimon Shiffer, one of the paper’s senior correspondents, called it “the beginning of a wonderful friendship.”

Separately, the visiting German foreign minister, Joschka Fischer, said yesterday that Palestinian presidential elections and an end to violence could lead to renewed Israeli-Palestinian peace talks, but leaders of the Islamic group Hamas dismissed the possibility of a truce.

Mr. Fischer’s visit was part of an intense flurry of diplomacy aimed at reinvigorating long-stalled peace efforts after Arafat’s death last month. American and European mediators have expressed rare optimism at ending more than four years of Israeli-Palestinian fighting. Elections to replace Arafat are set for January 9.

“I think the present situation with the coming election is a great opportunity – if there is responsible behavior by all parties on the ground and by the international community – to move toward a resumption of the peace talks which will lead to two states living peacefully side by side,” said Mr. Fischer, who met with Prime Minister Qurei and interim Palestinian Arab leader Mahmoud Abbas.

But in Gaza yesterday, Hamas leader Mahmoud Zahar said a truce was not on any agenda.

“Not a single word was said about a truce,” Mr. Zahar said. “We are defending ourselves and our people, pushing the Israelis out of our land.