Cheering crowds greeted Israeli soldier Gilad Schalit in his hometown of Mitzpe Hila on Tuesday, as he returned home for the first time after five years in prison on the Gaza Strip.

The young Israeli soldier became a household name after Gaza militants snatched him during a cross-border raid half a decade ago; his eventual release the product of a controversial prisoner swap.

His Hamas captors released Schalit on Tuesday after Israel simultaneously set free hundreds of Palestinian prisoners, in the first step of a prisoner-exchange deal that was recently brokered by Egyptian negotiators.

Schalit was first brought across the border Gaza shares with Egypt, while Israel began simultaneously releasing hundreds of Palestinians who were being held in its jails.

Schalit spoke briefly with a TV station in Egypt before he was allowed to cross the border into Israel.

The young soldier said he was "very excited to taste freedom" for the first time in years.

"Of course I missed my family. I missed my friends, meeting people to talk to people, and not to sit all day, to do the same things," said Schalit, who is now 25 years old.

He appeared pale and gaunt during the interview, but Israeli military officials said a physical exam had confirmed that Schalit was in good condition.

Schalit admitted to the interviewer that up until recently, he feared that the deal might collapse, leading to prolonged captivity for "many more years."

But by the mid-morning, a Hamas leader in Gaza said Schalit was no longer being held against his will.

Schalit was driven across the Egyptian border in a jeep and then flown by helicopter to the Tel Nof air base in central Israel, where he was reunited with his family.

His family had spent years waging a massive public campaign to get Schalit back on Israeli soil.

And like their son, the Schalit family was not ready to celebrate until they could be certain he had been freed.

"Until we see him, we are following with concern and anticipation," the soldier's father, Noam Schalit told Israeli Radio.

After the family was reunited, they were returned to their northern Israeli town on a military helicopter, which circled over rooftops draped with Israeli flags before making its landing. Thousands of people rushed into the streets to wave to the aircraft.

Meanwhile, police secured the area about the Schalit home, escorting the family there in a convoy once they were on the ground.

While many Israelis celebrated Schalit's return, some questioned if their government had given up too much.

"There's mixed feelings here in Israel. Obviously many people overjoyed, with 80 per cent of Israel supporting Gilad Schalit being released, being exchanged for over 1,000 Palestinians," CTV's Middle East Bureau Chief Martin Seemungal reported from Ramallah on Tuesday.

Yet the fact that dozens of the 477 Palestinians released on Tuesday were serving life sentences for deadly attacks left some Israeli critics questioning what repercussions could result from the completed prisoner swap.

Canadian victim reacts

The release of one Palestinian prisoner in particular troubled Vancouver resident Eve Camerman.

In 1989, she survived a bus hijacking in Israel that killed her sister, 33-year-old Shelley Wolochow.

Sixteen people died in the attack and many others were injured. The hijacker, Abdel Hadi Ghanem, survived and was sentenced to 16 life terms in prison. But he has been freed as part of the prisoner swap.

Camerman said "it wasn't a surprise at all" that Ghanem was released from jail because the prisoner swap had been in the works for several years. But it was "a heavy price to pay" for the return of Shalit to Israel, she told CTV's National Affairs on Tuesday.

"Obviously there's injustice here, but what can I say? The greater good is that Gilad Shalit comes home, and we hope for better times."

Some of the departing Palestinians were headed to the West Bank, others to Gaza, while 40 or so prisoners will be deported to Syria, Qatar, Turkey and Jordan.

Those released to the West Bank were taken to the grave of the late Palestinian leader Yasser Arafat and were greeted by Palestinian President Mahmoud Abbas.

"We thank God for your return and your safety," Abbas said. "You are freedom fighters and holy warriors for the sake of God and the homeland."

Another 550 Palestinians will be released from Israeli custody in about two months' time.

With files from The Associated Press