Palestinian militia leaders say Islamic militant groups have agreed to suspend attacks on Israelis for three months. An official announcement of a cease-fire is not expected before Sunday.
Confirmation of an agreement came Friday from several sources, after days of speculation that a truce was near.
The leader of the Palestinian militant group Hamas told the Reuters news agency his group has decided to stop attacks on Israelis. Sheikh Ahmed Yassin said, Hamas has studied all the developments and has reached a decision to call a truce, or a suspension of fighting activities.
The militants are also reported to be demanding that Israel halt all attacks against Palestinians.
Israeli officials have said they oppose the idea of a temporary cease-fire, because it could be used by the militants to regroup and re-arm and continue attacks on Israelis later.
Prime Minister Ariel Sharon has said the militant groups must be dismantled.
President Bush supported that position in a speech this week, and on Thursday his national security adviser, Condolezza Rice, called for Hamas and other Palestinian militant groups to be outlawed.
Ms Rice is expected in the region in the coming days for meetings with Palestinian Prime Minister Mahmoud Abbas Saturday night and with Israeli Prime Minister Ariel Sharon on Sunday.
During a stop in London, Ms. Rice urged European countries to declare Hamas' political wing a terrorist organization, not just the military wing. She said, the notion that, on the one hand, Hamas is peaceful, and on the other hand, is trying to blow up the peace process is just illogical and will not work.
Ms. Rice said other radical groups like Hezbollah and Islamic Jihad and what she termed "all of the other rejectionists" should be targeted as well.
Meanwhile, Palestinian Minister of Security Mohammed Dahlan told the Al-Jazeera satellite TV network that significant progress has been made in talks that could lead to a withdrawal of Israeli forces from the northern Gaza Strip and the West Bank town of Bethlehem.
It is believed an agreement would also include an easing of travel restrictions on Palestinians.
Mr. Dahlan has been meeting at the home of U.S. Ambassador Dan Kurtzer with General Amos Gilad, the coordinator of Israeli military activities in the Palestinian territories.
One of the requirements outlined in the internationally backed peace plan known as the "road map" calls on Israel to withdraw to positions it held before the outbreak of fighting in September 2000.
