Meetings in Baghdad between a delegation from the Kurdistan Regional Government and the central government have been taking place, and although there is no official confirmation, Azzaman, Sotal Iraq and the Voices of Iraq news agency have reported the agreement.

An agreement on funding for the Peshmerga, the Kurdish security forces, has reportedly also been reached.

The KRG and central government have squared off over the oil law for more than a year. The Kurds favor a decentralized oil sector, allowing producing provinces and regions some autonomy in signing deals with foreign companies.

The central government, however, claims the sole right to negotiate and sign deals in the oil and gas sectors. This issue, and the extent foreign firms should be allowed into Iraq's nationalized oil sector, are both blocking the oil law.

The KRG has passed its own regional oil law and signed more than 20 deals. Oil Minister Hussain al-Shahristani and other members of the government have called the deals illegal and have thus far blocked any companies that signed with the Kurds from entering the oil sector in the rest of Iraq.

A dispute over the oil-rich city of Kirkuk, as well as other territories outside the KRG area, plays into the talks as the Kurds push for a vote to allow residents to decide whether to join the KRG. A referendum was called for in the constitution, to take place by the end of 2007. It's a controversial item, however, since the area's Arabs and Turkomen populations, among others, disagree on whether Kirkuk should join.

The United Nations negotiated in December a six-month moratorium in order to resolve the issue.

This week's talks in Baghdad, however, may see another six-month extension in exchange for Baghdad recognizing the KRG oil deals, according to media reports.

This would be a major coup for the Kurds and a strong hit on Shahristani, who has been championing the pushback against the KRG deals while both negotiating oil deals with major oil firms and readying for Iraq's first round of oil and gas field tenders.

Rochdi Younsi, Middle East analyst for the business risk firm Eurasia Group, said if such a deal is realized it will harm the credibility of Shahristani and only delay a row over Kirkuk. And it could be a move by Prime Minister Nouri al-Maliki to shore up needed political support.

"If a deal with Kurdish leaders is indeed in the making, Prime Minister al-Maliki cannot secure the support of all Iraqi factions for it," Younsi said. "But in the context of Iraqi politics, competing political leaders will continue their efforts to avoid the worst by seeking short-term solutions to a multitude of complex sectarian, political and economic disputes."