The agreement would send up to 40 Palestinian gunmen wanted by Israeli authorities out of the West Bank to the Gaza Strip and to Italy in permanent exile.
Israeli forces are expected to withdraw from the city of Bethlehem after the transfer.
“We find ourselves right now almost in the final phase,” Israeli Defense Minister Binyamin Ben-Eliezer told Israel Radio. “I expect that in the coming hours the affair will end if nothing will be disrupted.”
Around 200 people, including the Palestinian militants, sought refuge inside the church after Israeli forces began the incursion into Bethlehem and other Palestinian-held territories early last month as part of a military campaign against Palestinian terrorists.
Over 100 people remain inside the church, including civilians and church clergy. The Church of the Nativity was built on the spot believed by Christians to be the place where Jesus was born.
Negotiators have not agreed on how many Palestinian gunmen wanted by Israeli authorities would be exiled to Italy. Previously, Palestinian leader Yasser Arafat refused to exile any Palestinians.
Father David Jaeger, a spokesman for Franciscan custodians of the Holy Land sites, told Reuters that the talks stalled Monday afternoon, saying, “It had been understood that Israel required seven [Palestinian gunmen] to leave, but at the last moment they upped the number to 13.”
“The talks aren’t over. As of this moment we have no information that it is really over yet,” he added.
U.S. Secretary of State Colin Powell confirmed Monday that a deal to end the standoff was close, but would not say when it would occur.
“It’s near. We need one or two little problems solved,” Powell told reporters this morning.
Powell is scheduled to meet with Israeli Prime Minister Ariel Sharon Monday afternoon. Sharon arrived in Washington late Sunday with plans to talk with President George W. Bush on Tuesday.
Sharon is bringing 100 pages of documents that he says outline the manner in which millions of dollars donated to the Palestinian Authority by the United States and Europe were used to finance terrorist attacks on Israel.