Fianna Fail and the Progressive Democrats will exchange written proposals within the next 10 days on a revised Programme for Government which could last into 2002.
A document detailing the Government's plans is to be produced at the end of September after negotiations between senior figures in both parties.
The revised Government programme will renew commitments to as yet unfulfilled promises and will outline proposals to deal with issues such as housing, traffic and the treatment of asylum-seekers.
The Taoiseach, Mr Ahern, said yesterday he was confident that the Government would survive to implement a renewed programme. "This is a good Government, it is a popular Government and it will last the course", he said.
Mr Ahern dismissed reports of divisions between the Tanaiste, Ms Harney, and the Minister for Finance, Mr McCreevy, over tax-cutting strategy. He said that the Government wanted to build on the radical tax changes - tax credits - introduced in the last Budget, but would also look at reducing the two tax rates. He also said it would deal with the situation where people on relatively low incomes paid too much tax.
In September there will be an intensive series of negotiations among Ministers as they attempt to agree the renewed Government programme, the tax reform and tax-cutting package for the December Budget, the National Development Plan and the Government's strategy for the imminent renegotiation of Partnership 2000.
After the Cabinet adjourned yesterday until September 1st, Mr Ahern asserted that the Government had implemented over three-quarters of the commitments it made in the Programme for Government in July 1997. He said that the document to be drawn up would "set new goals for our country that will be the pillars of the second half of our term in Government".
At yesterday's Cabinet meeting at Farmleigh House - bought recently by the State for £23 million - Ministers were presented with a detailed progress report of the Government's first two years in office.
In the introduction to the report Mr Ahern and Ms Harney say that the Government has implemented over three-quarters of the 258 specific commitments it made in the Programme for Government two years ago. Progress on the remainder was said to be "well in hand".
The goals outlined in the document to be produced in September will be the principles of the National Development Plan 20002006, which is to be agreed by next October, Mr Ahern and Ms Harney said. These would be central to the negotiation of a new social partnership agreement to replace Partnership 2000.
Mr Ahern and Ms Harney listed three priorities for the remainder of the Government's term of office: the achievement of an inclusive society; building a sustainable economy in which infra structure would keep pace with growth; and building a lasting settlement in Northern Ireland.
Mr Ahern told reporters later that the Government's economic strategy would continue. "We will continue to put enormous amounts into the capital programme and to reduce the national debt. We remain very committed to the ordinary PAYE workers . . . and we will build on the radical tax changes we have begun to introduce."
Yesterday's progress report highlighted moves towards peace in Northern Ireland and the dramatic economic figures, including the creation of 95,000 jobs in the past year and an unemployment rate of just 6.4 per cent.
GDP is estimated to have grown by 9.5 per cent in 1998 and 7.7 per cent in 1997. Exports increased by 27 per cent last year. A Budget surplus of £1.7 billion for 1999 is expected.
The document notes that crime levels at the start of this year were 16 per cent lower than two years ago. The success of the Criminal Assets Bureau and the scale of recent large drugs seizures were emphasised.