The Israeli Prime Minister, Ariel Sharon, and the Palestinian President, Mahmoud Abbas, are to announce a ceasefire, according to a Palestinian cabinet minister.
Saeb Erekat said the announcement would be made at a summit meeting between the two men in the Egyptian resort of Sharm el-Sheikh tomorrow.
An Israeli official is reported to have said that Israel will declare an end to its military operations in the Palestinian territories.
Tomorrow's summit will be the first between the elected Israeli and Palestinian leaders in more than four years.
Hopes for a diplomatic breakthrough were boosted today when the visiting US Secretary of State, Condoleezza Rice, announced the appointment of a US general as a security co-ordinator to the Middle East.
General William Ward was previously commander of the NATO Stabilisation Force in post-war Bosnia and had previous assignments to Egypt, Somalia, Germany and South Korea.
The US also pledged to give the equivalent of €31 million in aid in the next 90 days to the Palestinian Authority.
Announcing the pledge, Ms Rice also said Mr Abbas and Mr Sharon would visit the White House for talks with the US President, George W Bush, in the spring.
Ms Rice was speaking in the West Bank town of Ramallah after talks with Mr Abbas, whom she praised for taking measures to prevent guerrilla attacks against Israel.
Mr Abbas has deployed thousands of additional security force policemen across the Gaza Strip to stop the attacks.
Ms Rice urged the Palestinians and the Israelis to make the maximum effort for peace.
