You don't execute spies in peacetime, because captured spies are pawns in the Great Game.
They are no longer of any worth as spies, but there are often folks attached to them in their home countries, with bad consciences, etc.
Pollard got a lot of information for Israel, Israel's admitted it, and there is an immoderate desire on the part of the Jewish state to get him out of the hole in which the Americans have sent him to rot.
He's of no greater danger to the US, and doesn't cost anything significant to us to just let him rot in a sunless cell until he dies.
On the other hand, if he can be traded for something valuable that Israel has that we want, well, then he's a bargaining chip that can be tossed out there.
Many Israelis have chosen to make him a national hero of Israel. Some American Jews agree. This is a vulnerability of Israel, and very probably it's the AMERICANS who are floating this idea, because the Israeli government probably correctly values Pollard as worthless, other than as a symbol. Jerusalem doesn't want to let the terrorist go.
But if the Israeli public understands that Pollard's calvary can finally end, in exchange for some bedouin who's just another terrorist anyway (and who can presumably be tracked once he's released), they may force their government's hand into making a deal that the government doesn't want to make.
Of course, the wisdom of the USA playing the Pollard chip in order to get a terrorist released is open to severe question. But that is quite independent of the actual game of the exchange.
It seems to me that the Americans are playing a tough came of poker here with the Israelis. The Americans want the more valuable man - the Palestinian is an active leader with a following, but Pollard's just an aging spy flunkie.
However, emotions in Israel and among many American Jews are such that, properly played, Pollard's emotional value is too great for his government to resist, and they have to give up a strategically dangerous person in exchange for an old, useless, middle aged prisoner.
And, of course, once the Palestinian is released, he won't be in custody anymore and can be quickly assassinated. Pollard could be easily assassinated too, but it's better, from the American perspective, that he be allowed to live in Israel as a permanent source of embarrassment to the Israeli government (whenever it is necessary to distance one's self from Israel, one can always refer to the Liberty Incident and to Pollard, the hateful ex-spy, openly and notoriously living in Israel).
It will be interesting to see if the Americans will succeed in getting the Pollard sympathy pressure so high that Israel will be forced to accede to a very unfavorable deal, essentially trading a used-up pawn for a Palestinian rook.
Also, it removes a source of tension in American-Israeli relations, since we will no longer be holding their spy in cruel conditions. But the fact of his espionage and hero's status in Israel will allow the US government to anger the American populace at Israel sufficiently, whenever necessary, to allow for policies that otherwise will pinch the Jewish state.
The ideal solution is to drug Bagoudi, implant a chip unbeknownst to him to be able to track him, trade for Pollard, let Bagoudi get out there and stir up the rabble, and then at an appropriate time when leaders are concentrated, send in Hellfires from a Predator drone. You let him go out and lead everyone straight into his lair.
I am a completely unhyphenated American and I prefer that he live as a source of embarrassment to the Israeli gov't in a US JAIL CELL.
Until the day he dies.
Here is what is wrong with your analysis. The Jews In Israel and in US that care about Pollard are the same ones that are hardliners on terror. They would not advocate for such a trade releasing the terror master Barghouti.
Sheetrit and Beilin who want Barghouti freed could care less about Pollard. They are in the game, to use your expression, because they believe in Palestinian democracy and believe that the Palestinians will reform and abandon terror. They and their followers could care less about Pollard. Just read what they said -- nothing on Pollard, all about Barghouti's potential.