Former Pakistani premier Benazir Bhutto and President Pervez Musharraf agreed on a national reconciliation accord on Thursday that paves the way for a power-sharing deal, the government said.
The agreement gives an amnesty for politicians who served in Pakistan between 1988 and 1999, effectively clearing opposition leader Bhutto of the corruption charges that forced her into exile eight years ago.
The deal takes some of the pressure off staunch US ally Musharraf ahead of a presidential election on Saturday, a vote that Bhutto had earlier threatened to rob of credibility by pulling her MPs from parliament.
"They have agreed on the draft and it will be issued by the president tomorrow. Benazir Bhutto has given her assent," Railways Minister Sheikh Rashid, a close confidant of the president, told AFP.
There was no immediate confirmation from Bhutto, who held talks in London with key party leaders on the deal, or her Pakistan People's Party, although she said earlier that she was optimistic about the pact.
Bhutto has vowed to return to Pakistan by October 18. It will be her second homecoming after she was driven out of the country by military dictator Zia-ul-Haq in the 1980s.
"The agreement says that there will be an across-the-board indemnity for public office holders between 1988 and 1999," a senior government official who has seen the draft said on condition of anonymity.
It also says that if Pakistan's main graft-busting body wants to lodge a case against a politician it must first go through a special parliamentary committee "to avoid allegations of political motivations", the official said.
"The ordinance is not party or person-specific."
Bhutto's Pakistan People's Party has for its part agreed to withdraw a legal petition filed by its vice president in the Supreme Court that seeks to have the presidential election postponed, the official said.
Officials said the amnesty agreement would not apply to ex-prime minister Nawaz Sharif, whom Musharraf ousted in a coup in 1999 and who was deported soon after flying back to Pakistan in September.
Musharraf is expected to win a second term in Saturday's vote by the two national houses of parliament and four provincial assemblies, but would benefit from Bhutto's support ahead of general elections due in early 2008.
He has said he will quit as army chief before November 15 if he is elected.
Two-time prime minister Bhutto said earlier that if a definitive deal was reached, her party members would not quit parliament, but would instead either vote for their own candidate in the polls or abstain.
Bhutto has previously demanded that Musharraf should grant her an amnesty, give up his power to dismiss parliament and the prime minister and change the constitution so that premiers can serve a third term.
She said earlier that the other terms would be dealt with later.
The general has been in talks with Bhutto for a US-backed deal that would bring two Western-friendly leaders together in a country wracked by violence linked to Osama bin Laden's Al-Qaeda network.
Islamic rebels holding more than 200 Pakistani soldiers in a troubled tribal belt bordering Afghanistan killed three of their hostages on Thursday, while 26 people died in violence in the frontier region the previous day.
Musharraf on Frday faces one more last-ditch court challenge against the legitimacy of the vote by one of his election rivals, former judge Wajihuddin Ahmad.
His lawyer told the court that halting the election was in the national interest and would prevent a "chaotic situation" -- echoing Bhutto's warnings that there could be civil unrest if Musharraf does not back down.
The court is expected to rule on Friday.
Government officials warned on Thursday that Musharraf had a "counter-strategy" if the court postponed the election, but did not elaborate.