* Israeli minister says won't agree to borders before talks
* Says prisoners to be released include "heavyweights"
* U.S. says peace talks could resume in next week or so (Adds Netanyahu comment)
Israel will not bow to the Palestinians' demand on the borders of their future state before peace talks begin but will meet their request for the release of some prisoners, Israeli officials said on Saturday.
U.S. Secretary of State John Kerry said on Friday that Israel and the Palestinians had laid the groundwork to resume talks after an almost three-year stalemate, but that the deal was not final and required more diplomacy.
Remarks made on Saturday by Israeli Defence Minister Moshe Yaalon and Strategic Affairs Minister Yuval Steinitz suggest the sides still face major stumbling blocks before negotiations can resume, however.
Yaalon said in a statement that Israel "had insisted it would enter negotiations with no preconditions which included the Palestinian demand on the 1967 borders ... and that is exactly what is happening now."
The Palestinians say the talks must be about establishing a future state in the West Bank, the Gaza Strip and East Jerusalem, with borders approximating the boundaries that existed before Israel captured those territories in a 1967 war.
Steinitz said there had been no Israeli concession on that point nor on the Palestinian demand that Israel halt all construction of settlements in the occupied West Bank and East Jerusalem.
"There is no chance that we will agree to enter any negotiations that begin with defining territorial borders or concessions by Israel, nor a construction freeze," he said.
A senior Palestinian official with knowledge of the talks suggested the Palestinians would not back down. "Our position remains clear: resumption of negotiations should be based on the two-state solution and on the 1967 borders."
Kerry said on Friday that the deal between Israel and the Palestinians to resume negotiations was still being "formalised" but that negotiators for both sides could begin talks in Washington "within the next week or so".
In his first public comments since Kerry's announcement, Israeli Prime Minister Benjamin Netanyahu welcomed the apparent progress but did not indicate what steps Israel would take to ensure that the talks resume, if any.
"The resumption of the peace process at this time is a vital strategic interest of Israel. It is important in itself to try and end the conflict between us and the Palestinians and it is important in light of the challenges we face from Iran and Syria," Netanyahu said in a statement on Saturday.
Israeli lawmaker Tzachi Hanegbi, a confidant of Netanyahu, suggested the United States could have found a formula that would avoid the 1967 border issue torpedoing resumption of negotiations.
"The talks should be possible when both sides feel they have not conceded their basic positions. The Americans are entitled to say whatever they want. For instance, they could say that they think the talks should be based on the 1967 borders, but that this does not bind us," Hanegbi told Israel Radio.
"I suppose they will also say that the goal of the negotiations is to reach a deal in which the Palestinians recognise Israel as Jewish state, something that at least at the moment the Palestinians are unwilling to accept," Hanegbi said.
Palestinians have also long demanded that Israel free prisoners held since before 1993, when the two sides signed the Oslo Accords - an interim deal intended to lead to the establishment of a Palestinian state.
"In all meetings held by President Abu Mazen (Mahmoud Abbas) with minister Kerry and others, the Palestinian demand to release the prisoners topped the agenda," said Abbas's spokesman, Nabil Abu Rdaineh. "Freeing prisoners is a Palestinian priority that should precede any agreement.
Steinitz indicated that some of those who would be released had been convicted of violent crimes against Israelis.
"There will be some release of prisoners," Steinitz told Israel Radio. "I don't want to give numbers but there will be heavyweight prisoners who have been in jail for tens of years ... it will not be simple, but we will make that gesture." Steinitz said. "
The release would be carried out in phases, he added. It was unclear if any prisoners would be released before talks began. Some Israeli officials have said prisoners would only be freed after negotiations were underway.
There are 103 pre-Oslo prisoners in Israeli jails, according to the Palestinian Prisoners Club, a Palestinian body that looks after the interests of inmates and their families.
Israeli and Palestinian officials told Reuters on Friday the talks would take months to unfold. Steinitz said the Palestinians had agreed to enter talks that would take between nine months to a year.
He said this would stop the Palestinians from taking unilateral steps at the U.N. General Assembly in September, when they had planned to seek recognition for their statehood in the absence of direct talks with Israel.
Egyptian Foreign Minister Nabil Fahmy told a news conference on Saturday: "We support serious talks to take place with a set and precise time frame."
Kerry's drive to relaunch the peace talks was endorsed this week by the Arab League, which potentially holds out the prospect of a broader regional peace with Israel upon the establishment of a Palestinian state.
The Arab League's own peace proposals, launched over a decade ago, foundered on the issue of a return to 1967 borders, but it confirmed on Wednesday it had shifted its position to countenance "limited exchange of territory of the same value and size."
Such a formula could allow Israel to keep large settlement blocs it has said should remain in Israeli hands in any future peace deal.