Haaretz's editorial has more about why this prisoner swap deal with the Hizbullah is so problematic.

Hezbollah has positioned itself as the representative of countries that have, in the past, conducted negotiations with Israel about their prisoners. Hezbollah's demand for the release of Jordanian and Palestinian prisoners, as well as its demand (which was rejected) that Egyptian prisoners be freed, trespasses well beyond the norms of humanitarian exchange deals. This deal with Hezbollah is likely to have political repercussions that affect Israel's relations with neighboring states, and with the Palestinians.

The government voted in favor of the deal, by the way, as was expected. It's not a done deal though. Israel refuses to release Samir Kuntar, perpetrator of a murderous terrorist attack in Naharyia in 1979. Without him the Hizbullah won't go through with it.