Great emphasis is being placed on comments, made last Friday, by the Taoiseach Bertie Ahern.

He stressed that "we want to see that there is reform and that there is a modern regulatory system" and Cullen's proposals "will embrace that".

At the last cabinet meeting before the summer, the PDs vetoed a proposal by Cullen to fund the purchase of 260 buses for Dublin Bus and Bus Eireann, insisting this could not happen in isolation, but only in tandem with reform and liberalisation of the bus sector.

Ahern's comments signal that the gap between the two parties has narrowed considerably since then. The key stumbling block now is what powers will be given to the proposed Dublin Transportation Authority (DTA). It will have responsibility for franchising out new routes, but the PDs also want this to be extended to existing routes operated by Dublin Bus, which is being resisted by the unions. The compromise is likely to focus on the kind of staggered de-regulation of the market that occurred in other former state monopolies.

"There will be some debate, but I don't get a sense there isn't a way forward, " one source close to government said this weekend.

PD transport spokesman, senator Tom Morrissey, accepted that "substantial progress" has been made over the last 10 days.

The PDs were realistic enough to know the market can't be opened up tomorrow, he said. But he warned that "the process must be signalled".