BEIRUT, Lebanon (AP) _ Israel on Friday rejected an offer by Hezbollah guerrillas to swap the bodies of two missing Israeli soldiers for detained Muslim guerrillas.

Friday was the first time the Shiite Muslim group, backed by Iran, admitted to having the bodies.

``Yes, we have two dead Israeli soldiers. We don't have any others,'' said Sheik Hassan Nasrallah, Hezbollah's secretary general.

Nasrallah also suggested a trade to resolve the issue of Israeli soldiers missing in Lebanon and Shiite Muslims detained by the South Lebanon Army, a militia backed by Israel.

``Let the issue of the missing Israeli soldiers in Lebanon be handled in return for Lebanese and Palestinian prisoners,'' the bearded leader told a crowded news conference in Beirut's southern suburbs.

But Israeli Deputy Defense Minister Ori Orr said no deal would be possible unless Hezbollah revealed the whereabouts of missing Israeli airman Ron Arad.

``Until we Know where Ron Arad is, and Ron Arad will be part of an overall agreement, there is nothing to talk to them (Hezbollah) about and there won't be anything to talk to them about in the future,'' he told Israel's Channel Two television.

Hezbollah has consistently denied having any information about Arad. But Orr said Iran, Hezbollah's main backer, held the key to finding him.

Since Israel's 1982 invasion of Lebanon, six Israeli servicemen have gone missing in action. Two of the six were captured by Hezbollah guerrillas in a February 1986 ambush in south Lebanon.

The two Israelis were wounded when Hezbollah captured them, one of them seriously. Nasrallah did not say when or how they died.

Israel contends that Arad, captured when his plane was shot down in south Lebanon in October 1986, is the only one of the missing six still alive.

Hezbollah's news conference, held under tight security, was aimed at winning the release of more than 200 mostly Shiite prisoners held by the South Lebanon Army.

The men are being held at a detention camp in a south Lebanon enclave controlled by Israel to protect its northern areas from cross-border guerrilla raids.

On Tuesday, Hezbollah released three SLA soldiers _ five days after the SLA freed 32 prisoners.

Nasrallah said Hezbollah was prepared to trade the 19 SLA men it is still holding for the freedom of Shiite prisoners, including two Hezbollah leaders.

Israeli commandos kidnapped a Shiite commander, Mustafa Dirani, from eastern Lebanon in May 1994 to interrogate him about Arad's fate.

The other leader is Sheik Abdel-Karim Obeid, a Hezbollah cleric seized in an airborne Israeli commando raid on his south Lebanon home July 28, 1989.

Hezbollah has been waging a guerrilla war to evict the 1,200 Israeli soldiers and the 2,500-strong SLA from the border strip occupied by the Jewish state since 1985.