"During the summit, Israel will announce an end to military operations while the Palestinians will declare a cease-fire," said the source in Prime Minister Ariel Sharon's office.
"If the terrorist attacks and violence cease, there will be no need for us to launch operations, because calm responds to calm," the source added.
Tuesday's meeting between Sharon and Palestinian leader Mahmud Abbas on the shores of the Red Sea will be the first between Israeli and Palestinian leaders for over four years.
The summit, to be hosted by Egyptian President Hosni Mubarak will mark "the resumption of official ties between Israel and the Palestinians," Erakat said.
Monday's announcements mean the summit should end with a joint declaration drawing a line under the Palestinian uprising which erupted in September 2000 and has claimed over 4,700 lives on both sides.
Any such communiqué is also expected to include agreements on issues such as the transfer of security control in parts of the West Bank.
Encouraged by the moderate leadership of Abbas, who was elected on January 9 to succeed the late Yasser Arafat, Israel has taken steps to forge a rapprochement with the new leader after shunning his predecessor.
But the two sides have not yet patched up some of their thorniest differences, such as Israel's controversial West Bank security fence, Israeli settlement activity and the closure of Palestinian groups in east-Jerusalem.
"The discussions (on all these matters) will take place during the summit and afterwards," Erakat said.
Israel said last week it would free 900 of the 8,000 Palestinian prisoners it holds behind bars, tackling another key issue between the two sides.
A first batch of 500 is set to be freed soon after the summit, but Israel has insisted that none of the slated 900 would have "blood on their hands."
An Israeli-Palestinian committee, set up on Sunday, is reviewing the criteria of future prisoners slated for release.
But hundreds of Palestinians, joined by prisoner affairs minister Hisham Abdelrazzek, demonstrated in Gaza City on Monday for the release of all detainees held by Israel.
On a fleeting visit to the region, US Secretary of State Condoleezza Rice said she was confident the Sharm el-Sheikh summit would be a success after talks with Abbas and Sharon.
"I depart the region confident of the success of the meeting tomorrow between President Abbas and Prime Minister Sharon," she told a news conference at Tel Aviv airport on Monday.
The United States was "determined to do all it can in the weeks and months ahead", she added.
However, Israeli Foreign Minister Silvan Shalom has warned that a cease-fire by Palestinian militant groups was "not enough" and demanded the Palestinian leadership move decisively to disarm them once and for all.
"We must be clear, a cease-fire is not enough," he said on the eve of the meeting. The Palestinians "must act to deny the terrorists their capacity to strike".
An official insisted after the announcement that the Israeli military would preserve the right to "liquidate a human bomb" - in other words thwart a suspected Palestinian suicide bomber on the verge of committing an attack.