Iraq inched towards a new government on Wednesday after its two biggest Shiite Muslim alliances struck a deal to end months of post-election haggling that had paralysed politics and alarmed the US.
The agreement is likely to allow the country's Shiite religious parties to cling to power and see off the challenge from a secular alliance which won the most seats in the March 7 parliamentary election with strong Sunni backing, but failed to secure a majority.
There was no immediate announcement on the coalition's preferred candidate for prime minister but incumbent Premier Nuri al-Maliki appeared likely to be the main casualty of the deal announced late on Tuesday.
It is widely believed the price of the agreement between Maliki's State of Law bloc and the Iraqi National Alliance (INA) was a commitment that he would not continue in his post.
There was no immediate reaction from the United States, which in the past week urged Baghdad's politicians to set aside their differences and form a coalition that allows them to get back to the business of running the country.
American combat troops are due to pull out of Iraq by September, ahead of a complete military withdrawal at the end of 2011, and the seating of a new government in Baghdad is key to Washington's exit strategy.
The statement announcing the new Shiite pact was read by Abdul Razzaq al-Kadhami, an adviser to INA candidate Ibrahim Jaafari, Maliki's predecessor as premier, in a symbolic move that hinted Jaafari could return to power.
"An agreement was reached to form the largest parliamentary bloc through the union of the two blocs, the State of Law Alliance and the Iraqi National Alliance," said the statement, which was read out at Jaafari's residence.
"The most important thing is to form an Iraqi government, to establish a government programme and to nominate the next prime minister," Kadhami said.
The new coalition remains four seats short of the 163 needed to form a parliamentary majority but is still likely to take office.
According to full preliminary results from the election two months ago, State of Law won 89 seats in the 325-member Council of Representatives while the INA, led by Shiite religious groups, won 70 seats.
The Kurdish Alliance, made up of Iraq's autonomous northern region's two long-dominant blocs and holding 43 seats, has previously said it would join the coalition once the two main parties sorted out their differences.
Ex-premier Iyad Allawi's secular Iraqiya list, which had strong backing in Sunni areas, took the greatest number of seats, 91, in the election but it will now have to fight for representation in government to avoid being marginalised.
The final number of seats gained by each party could yet change, however, as electoral authorities are conducting a recount of votes in the key Baghdad constituency, which accounts for 70 parliamentary berths.
In addition, nine election-winning candidates are awaiting a ruling on whether or not they will be allowed to take office. One winning candidate, from Iraqiya, has already been disqualified.
Negotiations between State of Law and the INA heated up in recent days after weeks of deadlock, with the two sides having principally disagreed over whether Maliki should remain in office.
Although Maliki won more votes than any single candidate, he is reviled by Sadrists and the Supreme Iraqi Islamic Council, the two main groups within the INA.
Jaafari, who was prime minister for one year from 2005 to 2006, heads the National Reform Movement, which is part of the INA. He formerly headed the Dawa party, which Maliki now leads.
He was the NRM's only successful candidate in the elections, winning more than 100,000 votes, a greater total than any other INA candidate nationwide.
The 63-year-old physician, seen as close to neighbouring Iran, was forced out of his post in 2006 after he lost the backing of Iraq's Sunni and Kurdish minorities as sectarian bloodshed engulfed the country.