Israel and the Hizbollah guerrilla group were set to swap prisoners on Wednesday - two years after they fought a month-long war in Lebanon.
An estimated 1,200 Lebanese and 159 Israelis were killed.
Under a deal mediated by a German intelligence officer, Israel was to free five prisoners in exchange for two soldiers captured by Hizbollah guerrillas in a 2006 cross-border raid, who are widely presumed dead.
Israel will also hand over the bodies of 200 Arabs killed while infiltrating northern Israel. Hizbollah will return the remains of Israeli soldiers killed in south Lebanon.
The International Committee of the Red Cross sais the exchange is due to begin around 0600 GMT on Wednesday. The process is described as complex and could take hours.
Israel's cabinet approved the deal by a vote of 22-3 on Tuesday. Several ministers dissented against trading prisoners for the bodies of soldiers.