German Chancellor Angela Merkel's conservatives and the centre-left Social Democrats (SPD) made a breakthrough early this morning in talks about forming a "grand coalition" government.
Two senior Conservative politicians said the parties negotiated through the night and reached a breakthrough at about 5am (4am Irish time).
Two months after Chancellor Merkel's election victory and a month after coalition talks began, the agreement, if confirmed, would enable her to form a government by Christmas.
However, the SPD must get approval in a vote among more than 474,000 party members.
The ballot results are due on 14 December.
At an SPD congress in Leipzig, delegates said they would only decide after reading the coalition document.
The party leaders are expected to present details of a deal at a news conference later today, the deadline set by the Chancellor.
But they may wait two more weeks to announce the allocation of cabinet posts.
"The result is good for our country and has a conservative imprint," Hermann Groehe, secretary general of Ms Merkel's Christian Democrats (CDU) said.
"No new taxes and no new debts."
Martin Schulz, president of the European Parliament and a senior SPD negotiator, called it an "excellent result" for his party.
That adds uncertainty to a process that has dragged on for months, preventing Germany's European partners from pushing ahead with major reforms, such as a banking union.
But the likely outcome remains continuity under the popular chancellor.
Ms Merkel left the SPD headquarters, where the final round of talks took place, without speaking to the media.
But details of policy compromises emerging in recent days show she has leveraged her landslide victory in September's vote to ensure her brand of conservatisim continues to dominate Europe's largest economy.
Her CDU and its Bavariam sister party, the Christian Social Union (CSU), thrashed the SPD, but failed to win a parliamentary majority, forcing Ms Merkel to seek a partner.
She has made concessions to the SPD on the economy, agreeing to a minimum wage of €8.50 per hour, tighter rules for employers and pension hikes, despite protests from business.
Just before dawn, the bargaining stalled on how to fund this without Ms Merkel breaking a campaign promise not to increase taxes or debt.
Polls suggest most people trust Ms Merkel not to endanger an employment rate that is the envy of Europe.
She is also trusted on the euro crisis, where she has demanded fiscal reforms from the likes of Greece in return for bailouts.
Finance Minister Wolfgang Schaeuble is expected to keep his job.
Frank-Walter Steinmeier of the SPD may be foreign minister again, as in the last Merkel-led coalition of 2005-2009.
SPD chairman Sigmar Gabriel, who was in that cabinet too, could get a beefed-up economy ministry or lead the SPD in the Bundestag lower house.
The last "grand coalition" suited Ms Merkel, but prompted SPD left-wingers, already bitter about labour reforms launched by the last SPD chancellor, Gerhard Schroeder, to leave in droves.
Some of those reforms are now being watered down, but the members' ballot is still risky and a "no" vote could mean a new German election and a coalition between Ms Merkel and the Greens.
The SPD insisted Ms Merkel wait until after the vote to name her cabinet, to avoid giving supporters the impression that the likes of Mr Gabriel put their own ambitions above party values.
