MEGIDDO, ISRAEL, JULY 1 -- Israel freed more than 400 Palestinian prisoners today to mark the three-day Moslem holiday of Eid Adha, which begins Monday.

Freeing Arab prisoners is traditional here on religious holidays, but this release has raised speculation that the action could be related to a report that a Western hostage may be freed in Lebanon. There also has been speculation that the release points toward efforts by Israel to make peace with Palestinians.

The army said tonight that 416 Palestinian inmates had been freed from facilities in the Gaza Strip and from the Ketziot detention camp and Megiddo prison in northern Israel.

The Sunday Correspondent of London quoted Sayed Hossein Mosavian, an Iranian Foreign Ministry official, as saying a Western hostage could be freed soon without any concession by the West. But Mosavian also told the newspaper that the United States and other Western nations should press Israel to free its many Lebanese Shiite Moslem captives.

The Eid Adha holiday, or feast of sacrifice, commemorates Abraham's readiness to sacrifice his son to God. In Moslem belief, the son is Ishmael. In Jewish tradition, Isaac was the son offered by Abraham.

Dozens of Arab families from the occupied West Bank waited outside Megiddo prison for husbands, sons and brothers to be released. Many complained that those being freed were almost at the end of their sentences.

Dan Naveh, a chief aide to Israeli Defense Minister Moshe Arens, said the release of Arab prisoners is part of Arens's plan to coax Palestinians into peace talks by easing daily hardships. According to army statistics, Israel held 10,430 Arab security prisoners as of Friday.

{A bomb in a west Jerusalem building slightly injured three Israelis tonight, Reuter reported. It was the third bombing there in a month.}