The joint announcement followed a meeting between rebel leader Prachanda and Prime Minister Girija Prasad Koirala on the arms dispute, which had threatened a three-month ceasefire.

Under the agreement, the rebels would confine their soldiers and weapons to camps in the countryside and the army would stay in barracks, while UN civilians would monitor both sides, they said in a joint statement.

"We have agreed on a UN letter asking assistance in monitoring and managing arms and armies of both sides," said Home Minister Krishna Prasad Sitaula.

Arrangements would be worked out among the parties and the United Nations, the minister said.

"By reaching a common consensus we have entered into a new process in the peace deal from today onwards -- this has opened doors to address a new agenda during the peace process," rebel spokesman Krishna Bahadur Mahara quoted Prachanda as saying.

The spokesman told a press conference the meeting between Prachanda and Koirala "has sorted out the confusions that cropped up in the past few days. We have come to a positive conclusion and it is very important and sensitive."

The letter signed by Prachanda and Koirala was handed over to the United Nations High Commissioner for Refugees country representative Abraham Abraham at a media conference.

It will be forwarded to UN General Secretary Kofi Annan.

The issue gained urgency this week after the rebel number two Baburam Bhattarai warned the peace process was in jeopardy because of differences over weapons and over the role the king should play under a new constitution.

The dispute had threatened to derail plans for elections next year for a constituent assembly that will write a new constitution expected to curb the king's powers.

The rebels and an alliance of seven parties had led mass protests in April that led King Gyanendra to hand back power seized from lawmakers in February 2005. He has since been obliged to give up most of his powers.

The latest peace effort is the third time the government and the rebels have tried to end the insurgency which has claimed more than 12,500 lives since 1996.

United Nations experts in human rights, politics and arms control visited Nepal last week and had talks with the two sides on weapons management.

The rebels and the government have also pledged to adopt an interim constitution. They had been due to accept a draft of it later Wednesday but refused as some key issues remained unsettled, officials said.

"The government-Maoists talks team refused to accept the draft today. They said they would announce the new date to receive the draft," Laxman Prasad Aryal, head of the drafting panel, told AFP.

The draft law has skirted issues that are still in dispute between the government and the Maoists, who have been observing a ceasefire and negotiating a new political dispensation since King Gyanendra late April handed back the power he had seized 14 months earlier.

According to Aryal, these relate to the future position of the monarchy in the Himalayan nation, the structure of an alternative body to parliament and the date for constituent assembly elections.

"Those issues were not addressed as the parties and the Maoists failed to reach a common understanding," said Aryal.

The interim constitution would replace the country's first one approved in 1990 which established parliamentary democracy.

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