The swap boosts hopes on both sides that a broader prisoner-exchange deal could free Sergeant Shalit and end Israel's blockade of Gaza.
The real test, caution some, is whether Iran follows through on the tentative nuclear deal that would effectively prevent Tehran from developing a bomb.
At a midday break, diplomats said the tone has been "civil" but a US official says Iran's delegation lacks the 'cohesion and confidence' to make a deal.
The US is prepared to expand and toughen existing sanctions if Iran does not reverse course on its nuclear program.
Hosam Smadi liked his American teachers, rarely visited the mosque, and came from prominent families that reject terrorism. Why was he talking about jihad on extremist websites?
After last week's call for 'crippling sanctions' against Iran, Israel has adopted an 'eloquent silence' on the issue while it waits to see how Thursday's historic nuclear talks go.
Israel has agreed to release 20 female Palestinian prisoners in exchange for a video of Cpl. Gilad Shalit, who is being held in Gaza.