During a Likud faction meeting on Monday, the PM said any prisoner exchange agreement would be discussed by the Knesset and would require the cabinet's approval.
"I cannot say yet whether a deal will in fact be struck. It is not only up to us. There is hesitancy on the part of the other side as well," he said.
"It is still unclear what will happen – what will be offered and to what we will agree to."
During the meeting, Netanyahu spoke of the dilemma Israel is facing. "On the one hand, we want to look after our soldiers and bring them back home - a value that our nation and Jewish tradition hold in the highest regard - but on the other hand we want to avoid future kidnappings."
A delegation from Hamas, which controls Gaza, crossed into Egypt for a meeting with Egyptian security officials in Cairo to discuss the deal that Egypt and Germany have been mediating.
According to a member of the delegation, which is headed by Mahmoud al-Zahar and consists of senior Hamas figures from Gaza and Damascus, the Islamist group insists that Israel release imprisoned Arab-Israelis and residents of east Jerusalem as part of the deal. Israel has so far refused to include them in any prisoner swap.
A Hamas source told Ynet that the talks in Cairo are also focusing on Israel's demand that some of the Palestinian prisoners be exiled and forbidden from returning to their homes in the West Bank.