Nepal's ruling seven parties and the Maoist rebels have agreed to create a federal government and make changes in the electoral system in a bid to stem the violence engulfing the southern plains where people of Indian origin live.
The eight parties are expected to sign an agreement on Wednesday after which Prime Minister Girija Prasad Koirala will address the nation and disclose the changes agreed upon.
After hectic consultations for two days, Home Minister Krishna Prasad Sitaula said the government would incorporate changes in the constitution after the June elections to decentralise administration and create a federal system of government.
The parties have also agreed to have a proportional electoral system in addition to a mixed one for the upcoming constituent assembly polls.
Sitaula said 50 per cent of the over 400 seats in the coming elections would be chosen by the proportional representation system, as demanded by the Terai protesters.
The leaders have also consented to take a fresh look at constituencies, demarcating them on the basis of geography as well as population.
However, in return for the concessions, the eight parties have decided to crack down on violence and strictly control protesters trying to foment unrest.
The decisions come after the Madhes Janadhikar Forum, a socio-political organisation comprising Madhesis, people of Indian origin living in the Terai plains, began a series of shutdowns and blockades in the south from this month.
The Forum says the new constitution, promulgated this month, fails to address the injustice suffered by the plains community and it will disrupt the June elections if the diaspora's plight is not heeded.
The Forum is asking for an autonomous Madhes state in a federal government and a proportional electoral system.
The unrest over the last two weeks, spiralling into arson and vandalism, has seen the death of nine people and widened the divide between Nepal's hill and plains communities.
The demand for a Madhes state has snowballed with Madhesi MPs in the ruling parties supporting the movement.
A senior minister from the plains, commerce, industry and supplies minister Hridayesh Tripathi quit the cabinet and his party warned the government it would leave the ruling coalition if the Terai grievances were not heeded.
Two armed factions comprising former Maoist rebels have also started an armed movement in the plains in support of an autonomous state.
To add to the chaos, Nepal's government says King Gyanendra is trying to instigate violence in the plains to sabotage the election that could abolish monarchy.
Three former ministers during the king's regime have been arrested on the charge of conspiring to spread the unrest and other former royal appointees are said to be under watch.