If such a deal is clinched, Palestinian president Mahmud Abbas has indicated he will call off a July 26 referendum on the same initiative which the ruling Hamas movement claimed amounted to an attempt to overthrow its government.
Mr Abbas's referendum announcement earlier this month sparked the most intense fighting to date between armed elements of his Fatah faction and the Islamist Hamas.
Palestinian prime minister Ismail Haniya said in a statement that "tangible progress has been made" in the talks on the initiative, drawn up by Palestinian prisoners held in Israeli jails, while Fatah officials were equally upbeat.
"We've agreed on almost all of the issues in the prisoners initiative and things are looking very positive," Fatah spokesman Tawfiq Abu Khussa said.
"There is an agreement on the document with reservations, but the movement is positive and I expect agreement by the beginning of next week," said a spokesman for Abdullah Ifranji, a Fatah politburo leader participating in the cross-party talks.
Power struggle
The two groups have been embroiled in a fierce power struggle, which has left scores dead, since Hamas won control of the Palestinian parliament in a January poll.
Tensions in the Gaza Strip and West Bank, which last week seemed to be teetering on the brink of civil war, have calmed since the national dialogue began on Wednesday and Fatah and Hamas leaders alike have been making conciliatory overtures.
Mr Abbas criticised a European Union decision - endorsed by the international quartet for the Middle East - to bypass the Hamas government when it resumes aid to the Palestinians and defended Hamas's commitment to a ceasefire announced in February 2005.
Under the scheme the EU aims to release more than $US120m of funds to support local health services and cater for the basic needs of poor Palestinians.
The Hamas-led Palestinian government has given a guarded welcome to the plan, a Hamas spokesman saying any funds for impoverished Palestinians were welcome.
But he argued that in bypassing the elected government, the quartet was undermining democracy.
EU External Relations Commissioner Benita Ferrero-Waldner said in a statement: "The backing of the Quartet is an important step that will enable us now to start implementing our proposals.
The EU is by far the biggest aid donor to the Palestinians - giving some 500 million euros a year - but it froze some of those funds in April after Hamas was swept to power.
The Islamist movement is deemed a terrorist organisation by both the EU and the United States.
In talks with Mr Abbas on Sunday, Jordan's King Abdullah II urged Palestinian factions "to unite their ranks," and voiced "concern in the face of the deteriorating situation in the Palestinian territories."
Neither Fatah nor Hamas officials elaborated on the remaining obstacles to an agreement.
The prisoners document, drawn up by faction leaders in Israeli jails, calls for stopping attacks inside Israel and a Palestinian state on land occupied by Israel in 1967.
Recognition of Jewish state
Observers say it would amount to a de-facto recognition of the Jewish state, one of the international community's central demands before resuming aid to the beleaguered Hamas government.
Hamas, whose charter calls for armed resistance and the destruction of the Jewish state, initially opposed the initiative.
But a deepening financial crisis triggered by a financial boycott led by the European Union and the United States has left its government unable to pay salaries and pressured it to adopt a more pragmatic stance.
"I think we are going to agree to the document," refugee affairs minister Atef Adwan told AFP.
Adwan said the Hamas government is weighing a proposal to step down, to be replaced by a government of independent technocrats if the economic blockade is not lifted.
"It could be a way out of the problems for the Palestinian people and it's being discussed but we haven't agreed to anything as of now," Mr Adwan said.
Meanwhile, officials confirmed reports that Abbas's Fatah had merged thousands of its foot soldiers into the standing Palestinian security services, in what could be seen as a preparation for future clashes with Hamas.
Control of the security services has been a principal source of friction between Hamas and Fatah. Last week, a 3,000-strong Hamas-dominated militia was formally merged with the Palestinian police.