JERUSALEM--The Israeli government said yesterday that reports of a secret deal to swap Arab prisoners, held in Israel for foreign hostages in Lebanon was completely baseless.

The statement was in an affidavit given the Supreme Court as sworn testimony by State Attorney Yona Blatman's office. It was the strongest Israeli denial thus far of secret contacts to swap prisoners for hostages.

But it left open the possibility of negotiating a prisoner exchange for Israeli soldiers, seven of whom are listed as captured or missing in Lebanon since 1982.

The affidavit was submitted to the three-judge panel considering whether to hear a suit filed by families of terror victims to bar the government form releasing prisoners convicted of or on trial for terrorism.

"The reports published in the media and on which the families base their petition are completely baseless," the affidavit said.

It apparently responded to a report Wednesday in the Davar newspaper that cited Israeli and U.S. sources in Washington as saying Israel and the United States were negotiating a package deal--involving the International Committee of the Red Cross--to free all foreign hostages in Lebanon.

The affidavit indicated Israel was working to bring home its servicemen form Lebanon, including an airman held by the Lebanese militia Amal.