And if Israel doesn't want him badly enough to give up something really valuable that the Americans want, then that is indeed what will happen to Pollard: he'll sit in a US jail cell until he dies.
However, if Pollard, as a convicted, aging spy can be of greater use to the US as a chip in a trade for something, then it does not serve America's interests well to be foolishly vindictive about one guy who can do no more damage.
That's why you don't execute spies. Other nations want them back, and can be made to pay for them. Israel may well release this Bagoudi terrorist fellow, whom they know will actually go out there and try to kill Jews again, if that's the price the Americans place on letting Pollard go.
Now, whether this trade makes any sense or not depends on what the Americans are intending to do with Bagoudi, and the extent to which they need him for their plans.
Pollard's of no use to anyone as a spy, and of no use to Israel anymore. He's of no use to the US sitting in a sell. But if he can be sold in exchange for something of critical use to American policy now, then it would be unwise to simply squander a valuable pawn out of vindictiveness. Besides, you can always hit him with a burst of radiation on the way out so that he dies of cancer within a year anyway, if you really want to get him.
You're right about his value if we can use it to our advantage. My impression of these stories, more rumors, is that they're US initiated. The idea isn't that Bagoudi will be sent here, rather that he'll be free to, in all liklihood, gain control of Fatah and by extension the PA. He's a popular guy, an active, charismatic terrorist as opposed to Abbas who has always been an inside guy. Which, if these reports are true, raises the question of why we consider it in our interest to establish an active terrorist state in the mideast. Frankly, Jews will die, but Israel will be able to deal with the threat. A destabilized Egypt, Saudi Arabia, Jordan, and Iraq could be much more problematical.
I take it you are puzzled that people in Israel want him back at all, then...?