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Sgt. Schalit then was flown to an air base in central Israel, where he was hugged by Prime Minister Benjamin Netanyahu and Israel‘s military chief, Lt. Gen. Benny Gantz, and reunited with his family. Video footage showed Sgt. Schalit’s father, Noam, hugging and kissing his son before saying, “Come see your mother,” and leading him away for a family reunion.

Speaking afterward, Mr. Netanyahu said that he understood the pain of Israeli families who lost relatives in Palestinian violence, but that Israel‘s ethos of doing everything possible to bring its soldiers home safely forced him to act.

He also issued a staunch warning to the freed militants.

“We will continue to fight terror and every released terrorist who returns to terror will be held accountable,” he said.

Those concerns were underscored with comments by Palestinian prisoners and demonstrators for more soldier kidnappings to bring home the thousands of Palestinians who remain in Israeli prisons.

“The people want a new Gilad,” the crowd chanted in Gaza.

Hamas agreed to release Sgt. Schalit in exchange for 1,027 Palestinian prisoners, many of them serving life sentences for deadly attacks on Israelis.

Some 477 were set free on Tuesday, with the remainder to be released in two months. To address Israeli security concerns, Hamas agreed to have some 200 prisoners originally from the West Bank to be deported to the fenced-in Gaza Strip instead. Some 40 others were deported from the area altogether, sent to Jordan, Qatar, Syria and Turkey.

Hamas, which negotiated Tuesday’s swap, has controlled Gaza since capturing the territory from forces loyal to Palestinian President Mahmoud Abbas in 2007.

Hamas turned Tuesday’s celebration in Gaza into a show of strength for the Islamic militant movement.

Thousands hoisted green Hamas flags, while a far smaller number raised the banners of rival movement Fatah, led by Mr. Abbas. The released prisoners were making their way from the border with Egypt, on the southern edge of the Gaza Strip, to Gaza City in the north, and many thousands were lining the street to cheer on the convoy.

In the West Bank, Mr. Abbas addressed a crowd of several thousand, including released prisoners and their relatives. In an attempt at unity, he shared a stage with three Hamas leaders in the West Bank, and at one point the four men raised clasped hands in triumph.

Still, Mr. Abbas is likely to suffer politically as a result of the swap, the most significant for the Palestinians in nearly three decades. Over years of negotiating with Israel, Mr. Abbas has been able only to bring about the release of those who had little time left on their sentences.

While Israel has a long history of lopsided prisoner swaps, Tuesday’s deal was by far the most lopsided. It capped a 5½ saga that has seen multiple Israeli military offensives in Gaza, an Israeli blockade on the territory and numerous rounds of failed negotiations.

An intense media campaign to free Sgt. Schalit made him a national symbol in Israel, and all local radio and TV stations held special live broadcasts Tuesday, following every step of the exchange. The voices of Israeli broadcasters cracked with emotion as news of his return became clear.

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