Palestinian and Israeli negotiators appear close to an agreement that would end the standoff at Bethlehem's Church of the Nativity.
The outlines of an agreement to end the standoff are taking shape, but both sides disagree on several issues, including how many of the Palestinians hiding in the Christian shrine would be deported.
The Palestinians want no more than six militants inside the church sent into exile in Italy, while Israel is reportedly insisting that at least a dozen be forced to go abroad.
The Palestinians previously rejected any arrangement that involved exile for the men who Israel says are responsible for attacks against the Jewish state.
Under the emerging plan, more than 30 militants would be transported to the Gaza Strip to be tried in a Palestinian court.
The rest of the people inside the church, including Christian clerics and civilians, would be allowed to go free.
Palestinian officials say the agreement is being worked out with the help of representatives from the United States, Britain, the Vatican, and the European Union.
Israeli Defense Minister Binyamin Ben-Eliezer, who has been involved in the negotiations, says both sides are moving in a "positive direction."
The agreement could pave the way for Israeli troops to withdraw from Bethlehem.
The siege at the basilica began in early April when Israeli soldiers entered the city in a sweep for militants after Palestinian suicide attacks killed dozens of Israelis.
About 200 Palestinians, including gunmen, took refuge in the church, although about 75 have been allowed to leave in recent weeks.
Israeli snipers have killed several militants inside the compound.
Food is in short supply and sanitary conditions inside the shrine are said to be very poor.
The Church of the Nativity is built over the grotto where Christian tradition says Jesus was born.
If a deal is finalized and the Israeli military pulls back from Bethlehem, it could coincide with a meeting scheduled for Tuesday between Israeli Prime Minister Ariel Sharon and President Bush in Washington.
President Bush has demanded a full Israeli withdrawal from all Palestinian-ruled areas in the West Bank.