His comments came as ministers debated whether to go ahead with a prisoner swap with Hezbollah. Mr Olmert is reportedly backing the deal.

Critics oppose swapping prisoners for the bodies of dead Israeli troops.

The two soldiers' capture was a trigger for Israel's offensive against Hezbollah in the summer of 2006.

'Sensitive'

Observers say it is the first time the Israeli government has confirmed that Ehud Goldwasser and Eldad Regev are no longer alive.

Israel fought a war with Hezbollah in 2006

"We know what happened to them," Mr Olmert was quoted telling his cabinet by the Associated Press.

The proposed swap has been fiercely debated in Israel ahead of an expected decision by the cabinet on Sunday.

"There is no doubt that today's discussion has special weight and is exceptionally sensitive in terms of its national and moral implications," Mr Olmert said before cabinet convened.

Army radio later reported that he was backing the proposed deal.

It quoted him telling colleagues: "Despite all hesitations, after weighing the pros and the cons, I support the agreement."

In exchange for the soldiers, a number of Lebanese detainees would be set free, possibly including one man, Samir Qantar, who has been in jail since 1979 for his part in a deadly border raid.

Hezbollah has given no public indication that the two Israeli soldiers are still alive.

The Red Cross has never been allowed to see them and many in Israel assume they are dead.

Israel and Hezbollah fought a 34-day war after the soldiers were seized by Hezbollah in a cross-border raid into Israel in July 2006.

On 1 June, Hezbollah handed over the remains of five Israeli soldiers killed in the war.

The remains were delivered after Israel released a Lebanese-born man who had served six years in prison for spying for Hezbollah.

Another Israeli soldier, Gilad Shalit, remains a prisoner of  Hamas.

He was seized in a raid on an Israeli army position on the edge of the Gaza Strip. Hamas has said it would consider releasing him as part of a prisoner exchange.

BBC