The body of Oleg Shayhat, 20, was unearthed in the grove between the Arab villages of Kfar Kana and Mashad, near the city of Nazareth, police sources added.

There was no claim for the killing but Israeli security services suspect that Shayhat, who went missing July 21 after leaving his base, was abducted by a Palestinian armed group or an Israeli Arab cell with links to such groups.

Hundreds of security forces had been combing the area for the past several days and his military beret was found on Sunday.

"Israeli military scouts then found traces of blood which led them to the olive grove where the soldier was buried. He was no longer carrying his weapon," northern Israel police chief Yaacov Borosky told public radio.

Defence Minister Shaul Mofaz, present at a search coordination centre, told the radio that Israel would decide "what measures to take after having studied all the details of the case" from the security services.

On July 11, Palestinians kidnapped an Israeli taxi-driver and held him in a house near the West Bank city of Ramallah until July 15, when an Israeli commando rescued him unharmed and unguarded.

According to Israel, the kidnappers intended to use the cabbie as a bargaining chip to demand the release of Palestinian prisoners detained in Israeli jails.

On July 18, the Israeli army renewed a warning for soldiers not to hitch-hike, a popular method for them to travel around in Israel, due to the high risk of kidnapping.

WAR.WIRE