Cairo: Egypt and Israel are adding the "final touches" to a deal to swap an Israel-American detained in Cairo for a group of Egyptian prisoners and children.

"MENA has learned that the final touches are currently being made for a deal to swap Israeli spy Ilan Grapel, accused of spying on Egypt for Israel, for about 16 Egyptian prisoners and three detained children," MENA reported.

State-owned Nile Television, meanwhile, said it had received "reports" of an impending swap, but said that 28 Egyptians would be released, including the three children.

The caretaker cabinet tasked the foreign ministry on Thursday to oversee the exchange, two days after Israel freed hundreds of Palestinians for an Israeli soldier held by the Palestinian movement Hamas in an Egyptian-mediated swap.

Grapel, who has been in custody since June 12, is accused of being an agent of Israel's Mossad intelligence agency and of sowing sectarian strife and chaos in Egypt during the uprising which ousted president Hosni Mubarak in February.

Egyptian media published photographs of Grapel after his arrest in Cairo's Tahrir Square, the epicentre of the uprising, inside a mosque and in a downtown Cairo bar.

Pictures taken from his Facebook account showed him in Israeli military uniform.

Grapel served in the military like most Israelis as a conscript and was wounded in its 2006 war with the Lebanese militant group Hezbollah.

Israel has strongly denied Egypt's accusations, insisting the whole thing was a mistake and accusing Egyptian authorities of "bizarre behaviour."

Last week, unnamed Israel officials told public radio that a deal was in the works to release a US-Israeli joint national held in a Cairo prison in exchange for 81 Egyptians held in Israel.