``It is a breakthrough because it is the first time that both of them have accepted,'' one official told Reuters.

The official added that a few sticking points remained but that both sides were agreed on the negotiating framework and principles.

The two former allies went to war in May 1998. The issue had been the one major sticking point at the 35th annual summit of African leaders in Algeria, the last OAU summit of the century.

Officials said both sides accepted the principle that land occupied since May 6 -- effectively by Eritrea -- had to be vacated.

Ethiopia has been pushing for a withdrawal from the land which Eritrea occupied. Eritrea says Ethiopia occupied land before May 6 and was demanding compensation, one official said.

Another official said Algeria would make detailed proposals on a final peace deal covering such issues as withdrawal and the timetable.

``It is a breakthrough because it is the first time that both of them have accepted,'' one official told Reuters on the sidelines of the three-day summit.

He said a few sticking points remained but that both sides were agreed on the negotiating framework and principles of the peace initiative, which will be spearheaded by Algeria.

Eritrean President Isayas Afewerki and Ethiopia's powerful Prime Minister Meles Zenawi, former allies whose countries have been at war since May 1998, both attended the summit in Algiers.

OAU Secretary General Salim Ahmed Salim portrayed the move as an achievement.

``Both parties reaffirmed their acceptance of the Framework (agreement) and modalities. There are different interpretations but in a sense both accepted. We do consider that an achievement,'' he said.

Another official said that Algeria would make detailed proposals on a final peace deal covering such matters as withdrawal and a timetable. ``Algeria will take the leading role in the negotiating process,'' the official said.

The Horn of Africa neighbours went to war on May 6, 1998, each accusing the other of invading.

The OAU has tried repeatedly to rally the two sides around a Framework Agreement calling for a truce and an Eritrean withdrawal from land occupied since the start of the conflict, but differences over the interpretation of the deal have blocked progress.

``We were working on it. We came very close but it did not happen yet,'' Libya's Muammar Gaddafi, who has played a more and more active role in peacemaking in the continent, told reporters late Tuesday.

The leaders programmed an extra meeting on Eritrea and Ethiopia before the closing ceremony Wednesday.

Meeting informally in small groups outside the main conference room and in closed session inside, the leaders tried to rally the two sides around a framework agreement which Eritrea has yet to approve.

``Both sides are still prepared to resort to the military option so the leaders are trying to come out with a formula to speed up the mediation process,'' one OAU official told Reuters. Egypt's Foreign Minister Amr Moussa said that nothing had been signed. ``It was only a discussion,'' he said.

Africa's leaders, who have turned out in force for the summit, are focusing on the twin goals of ensuring that their continent can embrace economic globalization on its own terms and find home-grown solutions to its wars, officials say.

Conflict resolution has been at the heart of discussions, to the disappointment of African economists who had been hoping for a focused debate on the economy.

President Laurent Kabila and other leaders involved in the 11-month Congo conflict, held a series of meetings to try to speed up implementation of a cease-fire deal that they signed in Zambia on the eve of the summit.

Delegates quoted Zambian President Frederick Chiluba, who has lead the Congolese mediation effort, as expressing frustration at the disparity between the resources devoted by the United States to the Congo crisis and the Kosovo crisis.

Rwandan and Ugandan-backed rebels who took up arms against Kabila in August 1998 have yet to sign the deal but Kabila told French radio that this did not pose a problem in itself.

``The war is not yet over and this morning there was still some fighting,'' he said, adding that he expected an African force to deploy as peacekeepers under the U.N. banner within two weeks of the deal being signed by the rebels.

OAU officials say that U.N. Secretary-General Kofi Annan, who has been attending the summit, will return to New York to discuss logistics and the make-up of the force and that Africa will be comparing the treatment it receives with the West's response to the Kosovo crisis.

The heads of state and government, a good number of whom came to power through coups themselves, earlier decided to ostracize any future leader in the continent who takes power by force.

A spokesman for host Algeria said that the leaders were solidly behind the principle that power in the continent should only change hands through the ballot box.

But the measures -- adopted by the leaders meeting in closed session -- do not apply to the 1999 summit, which is being attended by the governments of Guinea-Bissau and Niger, whose elected presidents were toppled by force earlier in the year.

``If we have a meeting tomorrow and there's a coup d'etat somewhere (there's) no way for the leader of that coup to sit with us or to come to us or to be received by us. Finished. The position is now very clear,'' OAU spokesman Ibrahim Daggash said.

Niger, which has sent its transitional prime minister, and Guinea-Bissau, which is represented by its transitional president, were being allowed to attend ``in the African spirit,'' he added, confirming that some leaders had questioned their presence .

Daggash said that future coup leaders would be shunned. ''There will be no dealing with them, there will be diplomatic isolation as well. There are sanctions that can be put on them as well,'' he added. The OAU took a similar decision in 1997.

Earlier, U.N. refugee chief Sadako Ogata expressed concern about the plight of civilians caught up in the war between Eritrea and Ethiopia, which has driven an estimated 600,000 people from their homes.

``There are no solutions. I'm very concerned about the situation of the war there. We are very worried about it,'' she said.

The president of Eritrea and the powerful prime minister of Ethiopia, former allies whose countries have been at war since May 1998, were both at the summit.

Efforts by Gaddafi to bring the two men together for talks in his capital Tripoli on the eve of the summit failed.