During the 1982 Lebanon War, he was one of five Israeli soldiers declared missing in action after their tanks were hit during the Battle of Sultan Yacoub.

Shai and his tank crew became separated and he walked into a camp of the Popular Front for the Liberation of Palestine – General Command, a pro-Syria Palestinian militant organization headed by Ahmed Jibril.

Following extensive negotiations mediated by Austrian diplomats, Shai and two other captured Israeli soldiers were released in May 1985 in exchange for 1,150 Palestinian and Lebanese security prisoners held by Israel.

The Jibril Agreement, involving as it did so many Palestinian prisoners, many of whom were serving life sentences for mass murder, was not popular in Israel, but Prime Minister Yitzchak Rabin convinced the Israeli Cabinet to approve the deal.

When ordered to retreat to Israeli lines, Shai's tank, which was the last in the convoy, was hit by an enemy shell and its turret was entangled in a tree.

The crew, consisting of Shai, Zechariah Baumel, Zvi Feldman, and Arye Lieberman, abandoned the tank and hid in an orchard.

Shai wandered into a camp occupied by the Popular Front for the Liberation of Palestine – General Command (PFLP-GC), a pro-Syria Palestinian militant organization headed by Ahmed Jibril, and was taken prisoner.

Sometimes he paced the small area, and he also began cleaning the wall tiles and sealing the cracks with soap to prevent the incursion of roaches.

When they told him, eight months after his capture, that they had kidnapped two other Israeli soldiers, he contemplated suicide in order to "screw them", figuring his captors would demand a high price for his return.

[9] The brokered deal, known as the Jibril Agreement, called for PFLP-GC to release the three Israeli soldiers in exchange for 1,150 Palestinian and Lebanese security prisoners being held by Israel.

[8] Involving as it did so many Palestinian prisoners, many of whom were serving life sentences for mass murder, the Jibril Agreement was not popular in Israel.

Jewish residents of the West Bank were incensed that Palestinians convicted of killing settlers were being set free, and protests were staged.

[8][10] Defense Minister Yitzchak Rabin claimed that an Entebbe-style rescue operation had not been possible, so he "had no choice" and had negotiated "the best terms we could",[11] and convinced the Israeli Cabinet to approve it.

[3][8] In the years following his release, Shai suffered from post-traumatic stress, having difficulty concentrating and sleeping, and "getting angry and upset over every little thing".