In an interview late Tuesday with Hizbullah's Al-Manar television, Hassan Nasrullah also took pot shots at Lebanon's leadership.
Calling the government weak and fearful, he demanded that Prime Minister Fuad Siniora agree to a national unity government and threatened to take his case to the streets if upcoming talks fail.
Referring to the issue that set off the devastating 34-day Israeli onslaught on Lebanon, Nasrullah said, "the UN mediator entrusted with the issue of the prisoners is meeting with Hizbullah and Israeli officials, and the negotiations are continuing.
"We are exchanging ideas and conditions ... and the negotiations are on the right track and have achieved progress".
On July 12, Hizbullah guerrillas carried out a cross-border raid, capturing the two Israelis in a bid to secure a prisoner swap. Israel retaliated with an offensive that ended in a truce on August 14.
Israel's stated objective was to free the two soldiers and to destroy Hizbullah's ability to fire rockets on the Jewish state. It failed on both counts.
But on August 27, Nasrullah confirmed that negotiations on a prisoner swap had recently begun. And UN Secretary General Kofi Annan said on September 4 that both sides had accepted his offer to mediate a deal. He later appointed a mediator, but deliberately refrained from identifying him.
Both he and Nasrullah stressed that the talks be carried out in secret, with the Hizbullah chief bluntly stating that "in the case of any leak, the negotiations will be suspended."
Tuesday's interview appeared to be an effort to turn up the heat on Siniora and to push him toward acceding to Hizbullah demands for a unity government.
Nasrullah accused the leadership of seeking the occupation of the country by the UN force policing a cease-fire between Hizbullah and Israel.
The "party in power is seeking to make UNIFIL (the United Nations Interim Force in Lebanon) ... occupy Lebanon and disarm the resistance," as Hizbullah is commonly known in Lebanon.
"This plan is dangerous and of the sort that could transform Lebanon into another Iraq and another Afghanistan," he said.
In mid-August, the United Nations Security Council adopted Resolution 1701, which led to a cease-fire and called for the country to be free of arms except those held by the Lebanese state.
It also mandated the expansion of UNIFIL, which had been present since 1978, to help the Lebanese army maintain the cease-fire and to support its efforts to impose its authority in the south, long a Hizbullah bastion.
On Monday, the Security Council again pressed for the disbanding of militias and strict respect of Lebanon's territorial integrity and sovereignty as called for in a 2004 UN resolution Hizbullah, backed by Syria and Iran, insists that disarmament is a purely domestic issue, and it was domestic politics that drew much of Nasrullah's focus.
The government, of which Hizbullah is a part, is dominated by anti-Syrian politicians who swept to power in parliamentary elections last year, partly as the result of a popular backlash against Damascus.
It was widely suspected that Syria, which long dominated its smaller neighbour, ordered the murder a couple of months earlier of widely popular former premier Rafiq Hariri. Damascus has denied those claims, which are the subject of a UN investigation.
Hizbullah wants a government of national unity that will include other political groups, particularly its Christian ally, pro-Syrian former general Michel Aoun.
And Nasrullah said Hizbullah would call demonstrators into the streets if needs be.
"If dialogue does not result in a government of national unity, we will resort to demonstrations.
"We will obtain (it) by all peaceful and democratic means," he threatened, adding he also wanted early elections.
Parliamentary chief and Hizbullah ally Nabih Berri has called for a national dialogue to consider a national unity government and the adoption of a new electoral law to end the political stalemate.
The talks have been delayed until Monday because of the absence of several anti-Syrian leaders.
Copyright AFP (Agence France-Presse), 2006