Israeli soldier Gilad Shalit has finally returned home after emerging frail but elated from 1,941 days of captivity in a deal that saw 477 Palestinians walk free.

Thousands of spectators whistled and cheered, waving giant Israeli flags and throwing white carnations and roses as a convoy carrying Shalit and his family pulled into their home village of Mitzpe Hila, in northern Israel on Tuesday.

There was excitement also across the West Bank and Gaza following the release of 477 Palestinian prisoners, the first of some 1,027 who will be freed under a landmark prisoner swap between Israel and the Islamist Hamas movement.

"Today we experienced the rebirth of a son," the freed soldier's father, Noam Shalit, said after his return home. "Today we are ending a long and tiring journey that began in June 2006."

Shalit has French nationality through his grandmother and France's ambassador to Israel, Christophe Bigot, visited the family to deliver a letter from President Nicolas Sarkozy.

"I want to pay homage to your courage during this terrible trial and to tell you of our joy and our emotion," said the letter, the contents of which were made public by Bigot. "France never forgot you," it said.

Shortly afterwards, the 477 Palestinian prisoners were freed to tumultuous scenes, with thousands of relatives and supporters welcoming them with tears and embraces.

Among them were hundreds who were serving life sentences after being convicted of involvement in deadly attacks, in what is the highest price ever paid by the Jewish state for the release of one man.

The United States voiced "concerns" to Israel over some of the prisoners who were freed, the State Department said without elaborating.

"We have looked at some of these individuals and we've communicated our position... to the Israeli government," State Department spokesman Mark Toner said, adding he could not "get into the substance of our concerns too greatly."

However in the southern Gaza town of Rafah, thousands of excited family members celebrated as 296 newly released prisoners crossed the border.

They were driven to Gaza City where they were met by more than 200,000 well-wishers for a mass celebration.

In the West Bank town of Ramallaj Palestinian president Mahmud Abbas told the chanting crowd "your sacrifices and your efforts and your work have not been in vain."

While many governments expressed hope that the prisoner swap would pave the way for a resumption of peace talks between Israel and the Palestinians, Toner said it was difficult to draw that conclusion.

"I can't say whether this is going to lead in that direction or not. We would just want to see gestures on the part of both sides to build that kind of constructive atmosphere."

The White House also reacted cautiously. "We are pleased that Gilad Shalit is being reunited with his family," said White House spokesman Jay Carney, traveling with President Barack Obama in North Carolina.

"As regards the overall Mideast peace process, for us it's always about each side taking steps that make it easier to return to negotiations instead of harder.

Elsewhere the emphasis was more upbeat. British Prime Minister David Cameron expressed the hope that 'this prisoner exchange will bring peace a step closer'.

The prisoner exchange, which was announced by Israel and Hamas last week, kicked off before dawn Tuesday when hundreds of Palestinian prisoners were bused to drop-off points in and around the occupied territories.

But it was hours before Israeli officials confirmed that Shalit, who was 19 when he was snatched by three Gaza-based groups in a deadly cross-border raid on June 25, 2006, had crossed into Israeli territory.

Following an initial medical check, Shalit's state of health was said to be "satisfactory," although footage of him showed him looking gaunt and frail.

Shalit's return to Israel marks the first time in 26 years that a captured soldier has been brought back alive to the Jewish state.

Egyptian state television broadcast an interview with Shalit, who could be seen smiling as he answered the questions.

"Of course, I missed my family, I missed going out and meeting people, speaking with people," he said in Hebrew.

He also said he hoped the remaining Palestinian prisoners would be released. "I would be very happy if they were all released, they just shouldn't return to fighting Israel."

An Israeli official slammed the interview, saying it was 'forced' upon Shalit immediately after his release into Egyptian hands, while he was still weak and in shock.

Under the swap deal, 296 prisoners were released to Gaza, of whom 163 of them were exiled there from homes in the West Bank or annexed Arab east Jerusalem.

Another 117 went home to the West Bank, 15 returned to their families in east Jerusalem and seven Arab Israelis were also sent home. Another 40 plus prisoners are headed elsewhere in the Arab world or to Turkey.