Greek Prime Minister George Papandreou and opposition leader Antonis Samaras have agreed on a new coalition government, the office of the country's president said on Sunday.
The agreement came after the two leaders held talks with the president in an effort to break a political deadlock and thrash out a deal for a national unity government demanded by the country's European partners.
A presidency statement said they will meet again on Monday to discuss who would lead the coalition government, but that Papandreou would not lead the new administration.
"Tomorrow there will be new communication between the prime minister and the opposition leader on who will be the leader of the new government," the statement said.
The statement made no mention of how long the interim government would last.
The European Union gave Greece 24 hours on Sunday to explain how it will form a unity government to enact a bailout agreement.
Papandreou and his opponents have been scrambling to hammer out a deal ahead of a meeting by finance ministers of euro countries on Monday, to show that Greece is serious about taking steps needed to stave off bankruptcy.
One political analyst welcomed the deal, struck after doubts began to emerge over whether Greece could stay in the euro zone.
"I'm relieved. It's a very positive development. It was imposed by society and the need to stay in the euro zone, and it will not be overturned," said Costas Panagopoulos, head of ALCO polling agency.
The EU has made clear it wants a unity government in Greece to ensure consensus support for reform and restore confidence after a week that saw Papandreou first call for a referendum on the bailout and then backtrack under international pressure.
Earlier European Economic and Monetary Affairs Commissioner Olli Rehn told Reuters finance ministers from countries that use the single currency would insist on hearing a plan for a unity government from their Greek colleague Evangelos Venizelos at Monday's meeting in Brussels.
"We have called for a national unity government and remain persuaded that it is the convincing way of restoring confidence and meeting the commitments," he told Reuters. "We need a convincing report on this by Finance Minister Venizelos tomorrow in the Eurogroup."
An opposition conservative party official said Samaras' party is "absolutely satisfied" with the outcome of the talks and that party officials were to hold meetings late Sunday night with Finance Minister Evangelos Venizelos and his advisers to discuss how long it would take to finalize the new debt deal and when elections could be held.
"Our two targets, for Mr. Papandreou to resign and for elections to be held, have been met," the official said, speaking on condition of anonymity to discuss the process.
The crisis was sparked after Papandreou's shock announcement on Oct. 31 that he wanted to put a new European debt deal aimed at rescuing his country's economy to a referendum. That plan caused an uproar in Europe, with the leaders of France and Germany saying any popular vote in Greece would decide whether the country would remain in the euro. European officials also said the country would not receive the vital €8 billion euro installment of its existing €110 billion bailout until the uncertainty in Athens was over.
Papandreou's announcement also spooked international markets, leading stock markets to tumble and led to calls in Greece for Papandreou's resignation — even from among his own Socialist lawmakers and ministers — with many saying he had endangered Greece's bailout.
The prime minister withdrew the referendum plan on Thursday, after Samaras indicated his party would back the new debt deal, which was agreed upon after marathon negotiations in Europe on Oct. 27.
Greece has been surviving since May 2010 on its initial bailout. But its financial crisis was so severe that a second rescue was needed as the country remained locked out of international bond markets by sky-high interest rates and facing an unsustainable national debt increase.
The new European deal, agreed on by the 27-nation bloc on Oct. 27 after marathon negotiations, would give Greece an additional €130 billion ($179 billion) in rescue loans and bank support. It would also see banks write off 50 percent of Greek debt, worth some €100 billion ($138 billion). The goal is to reduce Greece's debts to the point where the country is able to handle its finances without relying on constant bailouts.
Greece's lawmakers must now approve the new rescue deal, putting intense pressure on the country's leaders to swiftly end the political crisis so parliament can convene and put the debt agreement to a vote.
"We know that there can be no elections now," Papandreou had said during an earlier emergency Cabinet meeting, noting that snap polls would delay the approval of the new debt deal. "This cooperation, however, is necessary and will be beneficial for the climate in our country and internationally."
In return for bailout money, Greece was forced to embark on a punishing program of tax increases and cuts in pensions and salaries that sent Papandreou's popularity plummeting and his majority in parliament whittled down from a comfortable 10 seats to just three.
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Associated Press writer Nicholas Paphitis in Athens contributed to this report.