BEIRUT, July 1 (Reuters) - Lebanon said on Tuesday a prisoner swap deal reached between Israel and Hezbollah marked a "big failure" for the Jewish state which had earlier refused to agree to such a plan.

Israeli Prime Minister Ehud Olmert secured cabinet approval on Sunday for a prisoner swap with Hezbollah under which two soldiers held by the guerrilla group, believed to be dead, would be recovered.

The capture of army reservists Ehud Goldwasser and Eldad Regev in a cross border raid in July 2006 triggered a 34-day war in Lebanon, with Olmert ruling out talks on their return. He later relented, negotiating through a U.N.-appointed mediator.

"The release of the prisoners through a German mediator, after this long time and according to the conditions published in the media, marks a big failure, and a very big failure of Israel's policy which refused, before the July 2006 war, to seal a complete exchange deal," a Lebanese government statement said.

"Then it returned and launched a war against Lebanon and its people with the excuse of demanding the prisoners, and then it returned and submitted in the end to the logic of negotiating through mediators, in order for the deal to succeed.

"This deal ... is a new and clear condemnation for Israel, its tactics and its policies."

In exchange for the soldiers, Israel would release five Lebanese gunmen and at a later stage an undisclosed number of Palestinian prisoners. Dozens of bodies of slain infiltrators and the remains of eight Hezbollah men killed in the 2006 war would also be handed over.

The deal is expected to take place within a few days.

In parallel to the Hezbollah talks, Israel has said it is interested in opening peace talks with Lebanon, a move the Lebanese government has rebuffed.

Lebanon's Prime Minister-designate Fouad Siniora has often said Lebanon would be the last Arab country to sign a peace treaty with Israel. (Writing by Yara Bayoumy; Editing by Ibon Villelabeitia)

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