COLOGNE, Germany — Israel released more than 400 prisoners Thursday in a long-awaited swap with the Lebanese guerrilla group Hezbollah in exchange for the return of an Israeli businessman and the bodies of three Israeli soldiers.

The German-brokered exchange was completed despite a suicide bombing earlier on a bus in Jerusalem that killed at least 10 bystanders and wounded about 50 in the deadliest attack on Israel in four months. The blast occurred near Israeli Prime Minister Ariel Sharon's official residence, but he was not in the area at the time.

"We are releasing another 400 Palestinians with a very heavy heart, because we know that these 400 will return very quickly to the cycle of violence," Israeli Foreign Ministry spokesman Jonathan Peled said in Jerusalem.

The release of the 400 Palestinians at checkpoints into the West Bank and Gaza Strip was the first stage of the swap. Jubilant relatives greeted the freed Palestinian prisoners at checkpoints into the West Bank and Gaza Strip with cheers of thanks to Hezbollah, Israel's arch enemy. Crowds waved Hezbollah flags.

The final stage of the swap took place in Germany, under tight security at Cologne's Wahn military airport, with the departure of a German air force carrying prisoners released from an Israeli jail to Lebanon, including Shiite cleric Abdel Karim Obeid and Lebanese guerrilla leader Mustafa Dirani.

Minutes later, an Israeli jet departed with Israeli businessman Elhanan Tannenbaum and the bodies of the three soldiers.

Israel also turned over the remains of 60 Lebanese militants as part of the German-brokered deal. An Israeli military truck took the bodies to Israel's northern border with Lebanon. Israeli soldiers carried the coffins one by one and placed the wooden boxes into a Red Cross truck, which then rumbled through a border crossing.

In the German stage of the swap, an Israeli air force jet carrying 28 prisoners from Arab nations and a German convicted of spying for Hezbollah, and a German air force plane carrying Tannenbaum and the three Israeli soldiers touched down before dawn in Cologne.

Originally, it was announced 36 prisoners were transferred to Germany but the Israeli Army later gave the breakdown in the swap as 400 Palestinians and 29 from other nations.

The planes taxied into the same hangar at the Wahn military airport and parked side by side, where a team of forensic experts began immediately examining the remains.

Israeli military sources confirmed that the team positively identified the soldiers' bodies about four hours later. Israeli military officials said they had received information that the bodies of the soldiers had been preserved in formaldehyde, which would have made them easier to identify.

The Israeli air force jet was to return to Tel Aviv with Tannenbaum and the bodies of the three soldiers later Thursday, while a German air force jet was to ferry the released prisoners to Beirut. Military police ringed the area and kept journalists and cameras away.

Before takeoff from Beirut, Lebanon, Tannenbaum briefly spoke to reporters as he was escorted to the German air force plane. Israeli reports had said Tannenbaum's health is failing and that he was tortured by Hezbollah. However, he appeared surprisingly fit and walked without assistance.

"My name is Elhanan Tannenbaum and I am an Israeli citizen," he told The Associated Press as he walked to the plane. Asked about his treatment, he replied: "I was treated very well by the Hezbollah."

Earlier, Hezbollah's Al Manar television showed an interview with Tannenbaum, the first video of the businessman since he was seized in October 2000.

The video showed him folding clothes on a bed. The presenter said Tannenbaum was preparing to leave for freedom. It was not clear when the video was made or if Tannenbaum was under any extra duress.

"I have to say that the treatment I received was good, almost without exception, even very good," he said.

Tannenbaum's son, Uri, confirmed the man in the video was his father, adding "he's not looking well."

Since Israel's founding in 1948, Israel has participated in several dozen prisoner exchanges with its Arab neighbors, many of them lopsided in the Arabs' favor. In 1985, Israel freed 1,150 Palestinians in exchange for three soldiers held in Lebanon.

The deal boosts Hezbollah's standing in the region because of its success in freeing Palestinian prisoners. In addition to getting the bodies and the businessman, Israel wins its first pledge of concrete information about an airman captured in 1986 in Lebanon.

But some Israelis complain that the price is too high and hands Hezbollah a victory that could help it destabilize the area. Many Palestinians expressed disappointment with the deal, complaining that no prominent uprising figures are included. Also, most of the 400 were scheduled to be released later this year.

Israel scheduled a memorial service Thursday evening for the three soldiers upon their return.

The soldiers, Beni Avraham, Adi Avitan and Omar Souad, were captured in October 2000 after a Hezbollah roadside bomb hit their jeep during a patrol along the Lebanese border.

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Tannenbaum, a former Israeli colonel who also was captured while conducting a business deal in an Arab country, faces questioning upon his return. Israeli officials would say only that Tannenbaum's first stop would be a hospital for medical treatment.

Tannenbaum told Al Manar that he had come to Lebanon in search of information about airman Ron Arad, who was shot down over Lebanon in 1986 and captured alive.

With the completed swap, the sides are to launch a second stage of negotiations, with Israel to receive concrete information on Arad within three months. In exchange, Israel would release Samir Kantar, a Lebanese militant who has been in an Israeli prison since 1979 for killing three Israelis.

Hezbollah said it planned a welcoming ceremony for its returning prisoners in Beirut on Thursday.

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