TABA, Egypt, Oct 27 (Tamim Elyan/Reuters) - Egyptians gathered at the border with Israel on Thursday awaiting the handover of prisoners to be exchanged for an American-Israeli man held by Egypt and accused of spying.

Israel will swap 25 jailed Egyptians for Ilan Grapel, 27, who was detained in Egypt in June on accusations he was out to recruit agents and monitor events in the revolt that toppled Hosni Mubarak, an ally of Israel and the United States.

Israel, whose relations with Egypt have been strained since the uprising, denied the charges.

The United States, which provides the army that now runs Egypt with billions of dollars in military aid, had called for Grapel's release. Analysts said the exchange provided a cover for Egypt to resolve the diplomatic headache.

I consider it a cover for returning this spy with pressure from the United States, said political analyst Hassan Nafaa.

The release of those 25 represents a cover that has no meaning in fact. It does not harm Israel and it does not significantly benefit Egyptians, he added. Many of those detained by Israel were convicted of smuggling offenses.

The U.S.-brokered exchange deal was reached shortly after a much more high-profile, Egyptian-brokered swap between Israel and Hamas Islamists that freed captive Israeli soldier Gilad Shalit in exchange for more than 1,000 Palestinian prisoners.

Grapel is expected to be flown from Cairo to Tel Aviv, while the Egyptians, mostly from Sinai, are due to be released through the border crossing next to the Egyptian Red Sea resort of Taba. The exchange is scheduled for Thursday afternoon.

We just want to see our brother. It is a good thing from Egypt to work on freeing them, said Mohamed el-Swarky, whose brother, Ashraf Abdallah, 18, was one of those to be released.


DRUGS AND GUNS

His family said he had been sentenced to three years in prison by Israel on charges of illegally crossing the border. They say he had lost his way. He has spent one year in jail.

Others in the area said many of the Egyptian prisoners to be released had been involved in smuggling, which is rife along Egypt's border with Israel and the Palestinian enclave of Gaza.

Israel's Prisons Service said Abdallah had been jailed for drugs trafficking as well as infiltration. The others on the release roster were held for similar offenses, including gun-running, but not for espionage or attacks on Israelis.

Our happiness isn't complete. We want our third brother. They went (across) because of the hard conditions, said Youssef al-Atrash, who said two of his brothers were among those to be freed, while a third would stay behind bars.

Many Bedouin in Sinai complain of neglect by the state. Sinai resorts such as Taba and Sharm el-Sheikh, with their five-star hotels, are popular with tourists. But Bedouin say they are excluded from jobs there and have to scratch a frugal living, or turn to smuggling.

The Sinai Peninsula was captured by Israel in the 1967 Arab-Israeli war and was handed back in the 1980s after Israel and Egypt signed a peace treaty in 1979, the first such deal between an Arab state and the Jewish nation.

Israel said three of the Egyptian prisoners to be swapped were under 18. It called for additional steps to help free another Israeli, Oudeh Suleiman Tarabin, jailed by Egypt 11 years ago.

Grapel's mother said at the time of his arrest that her son, a law student in the United States, had been working for Saint Andrew's Refugee Services, a non-governmental organisation, in Cairo.

Grapel emigrated to Israel in 2005 from New York and served in its military in the 2006 Lebanon war.

Over the years, Egypt has arrested a number of people accused of spying for Israel.

Israel flew its ambassador out of Egypt in September when the Israeli embassy was attacked by protesters angry at the killings of Egyptian border guards when Israeli troops pursued what is said were cross-border raiders in August. (Additional reporting by Dan Williams and Jeffrey Heller in Jerusalem and Shaimaa Fayed in Cairo; Writing by Edmund Blair; Editing by Andrew Roche)