Israeli soldier Gilad Shalit and hundreds of Palestinians were freed Tuesday in a historic prisoner exchange that set off celebrations in both Israel and the Palestinian territories.

Looking thin and tired, Israeli military man Gilad Shalit returned to Israel through Egypt which had mediated the swap. Nearly at the same time, Israel set free hundreds of Palestinians, some of whom crossed the Rafah border checkpoint into Gaza where families and friends hugged them.

The Israeli military said Shalit, held by Hamas since 2006, underwent a medical exam and spoke to his family by telephone, before being taken by helicopter to reunite with them at a military base in central Israel.

In an interview with Egyptian television after his release, a thin-looking Shalit said he was in good health and expressed hope the prisoner exchange deal would lead to peace between the Israelis and Palestinians.

Excited crowds celebrated the return of the Palestinian prisoners in the Gaza Strip as well as in the West Bank, where Palestinian President Mahmoud Abbas addressed several thousand people.

The exchange calls for the release of 477 Palestinian inmates Tuesday and another 550 over a two-month period.

About 100 of the Palestinians are being sent to the West Bank and roughly 40 are to be deported to Jordan, Turkey, Qatar and Syria. The rest are being freed in Gaza.

Shalit, now 25 years-old, was captured by Palestinian militants in a 2006 cross-border raid from Gaza into southern Israel.

Israel's Supreme Court upheld the prisoner exchange deal Monday, rejecting four petitions submitted by relatives of Israelis killed in Palestinian attacks.

Some of the prisoners to be released were involved in planning and carrying out terrorist attacks against Israelis, including more than 280 Palestinians serving life sentences. More than 100 are considered hardcore militants.

In Washington Monday, U.S. State Department spokesman Mark Toner said international mediators will meet separately with Palestinian and Israeli negotiators in Jerusalem on October 26, in an effort to re-launch peace talks.

The Middle East Quartet of mediators includes the U.S., European Union, Russia and the United Nations. The talks will just miss the 30-day deadline to restart preliminary talks that the Quartet set on September 23.

Quartet envoy Tony Blair, Britain's former prime minister, will attend the meetings.