The Muslim Brotherhood privately realizes the military-led powers will never agree to Morsi's return and is "hoping to find a dignified exit for him," a source close to crisis talks mediated by Washington the European Union told the newspaper.
"I think most people agree that it isn't possible to bring Mr. Morsi back," The Independent quoted the source as saying. "Anyway, how could he come back without the support of all the state institutions? With no judiciary, with no Interior Ministry or army?"
Options being considered in the talks include letting Morsi, who was overthrown by the military July 3, announce his resignation on TV and formally hand his executive powers to interim Prime Minister Hazem al-Beblawi, the source said.
Another option would be to let Morsi be released and flown into exile, the source said.
An anonymous EU official told the newspaper Morsi's allies appeared willing to sacrifice the former president in return for a deal in which arrested Brotherhood officials would be released from detention and allowed to return safely to their homes.
Those officials would then be told to refrain from political activism, the official said.
The Brotherhood has said it also wants an end to a ban on Islamist TV stations and a curtailment of the use of force against protesters.
Morsi, detained by the military since being removed, has not been seen in public since the overthrow.
Thousands of Morsi supporters have been defying government warnings to abandon two massive sit-ins in Cairo squares. The protesters are demanding the ousted president's reinstatement.
Yemeni Nobel Peace laureate Tawakul Karman was denied entry into Egypt "for security reasons" when she arrived at Cairo International Airport Sunday because she intended to join the protests, authorities said.
Karman, the first Yemeni, first Arab woman and and second Muslim woman to win the prize, was told to return to the United Arab Emirates on the same plane that took her to Cairo, several media outlets reported.
The state-run Middle East News Agency said Karman, who had said she backed Morsi supporters, was on a list of people who not allowed to enter Egypt.
The intensifying talks to find a peaceful way of ending the sit-in standoff -- mediated by U.S. Deputy Secretary of State William Joseph Burns and EU Special Representative for the Southern Mediterranean Bernardino Leon -- are also to include U.S. Sens. John McCain, R-Ariz., and Lindsey Graham, R-S.C., after they arrive in Cairo Monday, the BBC reported.
U.S. President Barack Obama last week asked the senators to go to Egypt.
Burns met Sunday with First Deputy Prime Minister Gen. Abdel Fattah al-Sisi, who is also defense minister and armed forces commander in chief, along with interim President Adly Mansour, the Egyptian Foreign Ministry said.
He and Leon also met with Egyptian Foreign Minister Nabil Fahmy. Burns separately met with the Muslim Brotherhood, the BBC said.
Also participating in the talks are the foreign ministers of Qatar and the United Arab Emirates, the BBC said.
Pressure to resolve the crisis intensified after Egypt's most senior security body said Sunday the negotiations were not open-ended.
The National Defense Council, a military-civilian body that includes Sisi and Mansour, also said whatever settlement is reached would not protect "lawbreakers" from retribution.
At the same time, a Cairo court said two senior Brotherhood members -- Supreme Guide Mohamed Badie and his deputy, Khairat al-Shater -- face an Aug. 25 trial for allegedly inciting killings during protests shortly before Morsi was toppled, the state-run Middle East News Agency reported.
If the crisis talks break down, Western governments have said they fear Egypt's security services will try to clear the thousands of pro-Morsi protesters, leading to a potential bloodbath.
More than 100 Morsi supporters have been killed in clashes since the president was overthrown.