The bodies of Israeli reservists Ehud Goldwasser and Eldad Regev returned home for burial on Wednesday, two years and four days after they were seized in the Hezbollah cross-border attack that triggered the 2006 Lebanon war.

Until the last moment, the Iranian-backed Shiite militia refused to provide any word on whether the Israeli soldiers were dead or alive, even as the group hammered out a prisoner swap deal with Israel through a UN-appointed German mediator.

Live footage of the coffins being delivered to the Red Cross at the Rosh Hanikra border crossing - under a Hezbollah banner that read "Israel sheds tears of pain, Lebanon sheds tears of joy" - brought the painful news home.

At the homes of the Goldwasser and Regev families, crowds of well-wishers wept and cried in outrage. An elderly woman fainted. Dazed-looking children lit memorial candles.

"It was a terrible thing to see, really terrible," said Eldad's father, Zvi of the moment he saw Hezbollah take the coffins from a van. "I was always optimistic, and I hoped all the time that Udi and Eldad were alive and that they would come home and we would hug them."

Interviewed as the military rabbinate identified the bodies, Goldwasser's father, Shlomo, voiced resignation.

"This was not much of a surprise," said, alluding to an earlier announcement by Prime Minister Ehud Olmert that the captives should be assumed dead. "But confronting reality is always difficult."

Under the swap deal, Hezbollah received four of its fighters who were captured in the 2006 war, as well as Samir Kuntar, a Lebanese Druse convicted in Israel for infiltrating the border in 1979 and murdering four Israelis, including a four-year-old girl and her father.

In the deal, Israel also repatriated the bodies of 199 Arabs who had died trying to infiltrate the northern border over the decades. Hezbollah was to hand over remains of other Israeli soldiers killed in Lebanon.

Kuntar, reviled in Israel, has become a cause celebre for Hezbollah, which called him an "Arab holy warrior".

Now fluent in Hebrew and equipped with a correspondence-course degree from an Israeli university, Kuntar was reported to be considering a job as a Hezbollah spokesman.

"When he took this action, the Hezbollah organisation didn't even exist," said Brig-Gen Avi Beniyahu, Israel's chief military spokesman.

"To those who plan to dress him up in Hezbollah clothes and hold a victory procession with him in Lebanon, I say woe betide the nation that has no heroes."

Mark Regev, a spokesman for the prime minister, condemned the celebrations.

"Samir Kantar is a brutal murderer of children and anybody celebrating him as a hero is trampling on basic human decency," he said.

While many Israelis have condemned the asymmetric swap, on Wednesday some pundits commended the Olmert government for not giving in to Hezbollah's initial demand for the deal to include the release of hundreds of jailed Arab terrorists.

"In all decency, it has to be admitted that this morning's deal is one of the 'cheapest' in the history of the State of Israel, almost the 'best' of them," former Yitzhak Rabin aide Eitan Cabel wrote in Israel's daily Yediot Achronot.

With Kuntar free, Hezbollah may try to avenge Mughniyeh with major terrorist attacks on Israel, sources in Jerusalem warned.

The focus in Israel is now likley to turn to the Israeli soldier taken captive by Hamas in 2006, Gilad Shalit.

Shalit, who survived the cross-border raid that resulted in his capture, had been allowed to send messages to his family.