Pakistan's cabinet has approved a reconciliation ordinance which will clear the way for Benazir Bhutto to return.
President Pervez Musharraf is planning to agree a power-sharing accord with the former prime minister.
General Musharraf is seeking another term in office in tomorrow's election.
He is due to promulgate the ordinance, which will erase corruption charges against Ms Bhutto and others, later today.
Ms Bhutto is then expected to return to Pakistan on 18 October.
The ordinance gives an amnesty for politicians active in Pakistan between 1988 and 1999 - effectively clearing Ms Bhutto of the corruption charges that forced her into exile eight years ago.
Ms Bhutto, whose Pakistan People's Party is the country's largest, had earlier threatened to undermine Mr Musharraf's expected victory by pulling her MPs from parliament, after other opposition parties also resigned.
Earlier, Pakistan's Supreme Court ruled that President Musharraf could legally stand for re-election, but it ordered that the result not be announced until it resolves other legal challenges.
The ruling means that the court will decide whether it will validate the result of Saturday's election, which Mr Musharraf is widely expected to win.
Mr Musharraf, a key US ally in the 'war on terror', seized power in a coup in 1999 and is controversially standing for re-election while still holding his position as army chief.
Opponents challenged the validity of the election, but the Supreme Court's ruling clears the way for the vote, carried out by an electoral college of the national and federal parliaments, to go ahead.
The court was ruling on challenges filed by the vice-chairman of Ms Bhutto's party, Makhdoom Amin Fahim, and by retired judge Wajihuddin Ahmad, who refused to swear allegiance after Musharraf's 1999 power-grab.
A senior government official has said the decision risked heightening tensions in the volatile Islamic republic.
Mr Musharraf has promised to quit his military role by 15 November if he wins the election.
