In one of the biggest such exchanges between the two sides, Sergeant Shalit was flown to his parents' home in northern Israel after more than five years held incommunicado by Hamas in the Gaza Strip, while a first 477 of over 1,000 Palestinians in the deal left Israeli jails for Gaza, the West Bank and abroad.
Hundreds of flag-waving wellwishers lined the streets of Shalit's rural home town. Many danced as a ceremonial shofar horn was blown when he arrived at nightfall after a day that he began, as nearly 2,000 before, hidden away somewhere in Gaza.
In the Palestinian coastal enclave, Hamas's Islamist leaders claimed vindication for uncompromising hostility toward Israel that, on Tuesday at least, overshadowed the efforts of rivals led by Palestinian President Mahmoud Abbas in the West Bank.
"I missed my family very much," a gaunt Shalit, his breathing laboured at times, said in an interview with Egyptian television as he was moved through Egypt from Gaza. "I hope this deal will promote peace between Israel and the Palestinians."
But there was no sign from Israel or Hamas, an Islamist group dedicated to its destruction, that the Egyptian-brokered deal could be a starting point for dialogue.
"The people want a new Gilad, the people want a new Gilad," tens of thousands of people chanted at a rally in Gaza for freed prisoners, urging that their fighters capture more soldiers to help free some of the 5,000 Palestinians still held by Israel.
Israeli Prime Minister Benjamin Netanyahu, welcoming Shalit home, warned the former prisoners they would be "taking their life into their own hands" if they "returned to terror".
Defending a deal that left a bittersweet aftertaste in Israel, Netanyahu said he felt the pain of the relatives of Israelis killed by some of the Palestinians released, but saving a soldier from captivity was a Jewish Biblical imperative.
"It is a difficult day," he said, describing the price Israel paid for Shalit's release as high.
Shalit was taken across the frontier from the Gaza Strip into Egypt's Sinai peninsula and driven to Israel's Kerem Shalom - Vineyard of Peace - border crossing, from where a helicopter flew him to an Israeli air base for a reunion with his parents.
Simultaneously Israel freed 477 Palestinian prisoners, most of them to the Gaza Strip and many serving life terms for attacks that killed Israelis. Hamas leaders greeted former prisoners piling off buses bearing Red Cross insignia.
Under the terms of the deal, 40 of those who had been jailed for involvement in deadly attacks were being deported from Palestinian territory. Turkey confirmed it would take in around 10, while others were destined for Syria and Qatar.
Egypt helped to mediate the long-awaited deal, and its army-backed interim government has sought to revive a role as a diplomatic linchpin in the Middle East.
Palestinians, awaiting the release of prisoners at a West Bank checkpoint, hurled rocks at Israeli soldiers, who responded with tear gas, after the military announced to the crowd over a loudspeaker that the group had been taken to another crossing.
In the television interview, Shalit said he found out a week ago that he was to be released. The soldier, who had not been seen since a 2009 video, said he had feared he would be held "for many more years".
Political commentators said it appeared unlikely the prisoner exchange agreed by the two bitter enemies would have any immediate impact on Israeli-Palestinian negotiations that broke down last year.
The mood in Israel was largely celebratory, with "welcome home" signs on street corners and morning commuters watching live broadcasts of the swap on cellular telephones.
Wellwishers threw flowers and uncorked champagne as Shalit arrived at his hometown of Mitzpe Hila, near the Lebanese border. He managed one shy wave before being whisked into the family home.
Shalit has been popularly portrayed as "everyone's son" and opinion polls showed that an overwhelming majority of Israelis backed the deal.
A military statement said he was in good health and the army released photographs of him, back in uniform and spectacles, saluting Netanyahu. But witnesses said Shalit felt nauseous and weak on his arrival in Israel and needed oxygen.
"I brought your boy home," Netanyahu said he told Shalit's parents, as he waited with them at the air base for the soldier's helicopter to land.
"Our son has been reborn," his father Noam said later, telling wellwishers that Shalit had some health problems due to lack of sunlight and of care for shrapnel wounds sustained when he was snatched in a border raid in which two comrades died.
In Ramallah, near Jerusalem, Qahera Assadi fainted after embracing her family again, nine years after being jailed for her part in helping an Islamic Jihad suicide bomber.
"I must be dreaming," said Assadi, 34, as she greeted her husband and four children. "I did what I did in defence of my nation and children and have no regrets at all. I was kidnapped from my children and spent a decade in prison."
Shalit's parents had waged a public campaign to urge the right-wing leader to do more to secure his release and had set up a protest tent near Netanyahu's residence.
For Palestinians, it was a time to celebrate what Hamas hailed as a victory.
In Gaza, territory seized by Hamas in 2007 from Abbas's Fatah movement, a national holiday was declared and flag-waving young men drove through the streets. Hamas leader Ismail Haniyeh embraced the freed prisoners as they piled out of buses.
Other former prisoners also received a heroes' welcome in Ramallah, the headquarters of Abbas's West Bank-based Palestinian Authority.
"This is the greatest joy for the Palestinian people," said Azzia al-Qawasmeh, who waited at a West Bank checkpoint for her son Amer, whom she said had been in prison for 24 years.
Some see the prisoner deal as a boost for Hamas at the expense of Abbas, who has renounced violence in favour of negotiation but has so far failed to see years of talks with Israel produce major progress toward a Palestinian state.
But on the wider diplomatic front, it was announced on the eve of the swap that international efforts to revive peace talks that collapsed 13 months ago in a dispute over Israeli settlement-building had failed to bring both sides together for meetings scheduled for Oct. 26 in Jerusalem.
Envoys from the Quartet of mediators -- the United States, the European Union, Russia and the United Nations -- will instead hold separate sessions with Israeli and Palestinian officials. Hamas opposes the peace process.
Palestinians set free included Nasser Yatayma, serving a life sentence for involvement in a suicide bombing that killed 30 people attending a Jewish Passover seder, or traditional meal, in a hotel in central Israel in 2002.
Amana Mona, a Palestinian activist from the West Bank, was also released. She was jailed for life for using an Internet chatroom and promises of sex to lure a 16-year-old Israeli to his death in 2001, when she was 24.
Shalit was abducted in June 2006 by militants who tunnelled into Israel from the Gaza Strip and surprised his tank crew, killing two of his comrades. He was whisked back into Gaza and has since been held incommunicado.
Israel, which withdrew troops and settlers from Gaza in 2005, tightened its blockade of the small coastal enclave after Shalit's disappearance.
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