Fianna Fáil and Green Party negotiators yesterday reached outline agreement on key areas of the economy and social welfare during their second round of talks on the formation of a government.
However, both sides signalled last night there was tough talking ahead on areas of major policy difference, including the Government's hospital co-location plan and the Green Party demand for a ban on corporate donations.
Resumed coalition talks at Government Buildings lasted for five hours, and afterwards both sides indicated difficult areas had been put aside to be tackled nearer the end of the negotiations.
They said further documents would be exchanged, and more research undertaken on a number of "outstanding issues" in the coming days.
The talks will resume this morning, and are likely to continue until late.
Yesterday the parties discussed the economy, social welfare, agriculture, the arts and sport.
Today's talks will focus on the environment, energy, transport, education, defence, the marine and justice.
The talks are central to Taoiseach Bertie Ahern's plan to form an 86-seat government with the Greens and the Progressive Democrats, along with the involvement of three of the five Independents, Michael Lowry, Beverley Flynn and Jackie Healy-Rae.
It is understood discussions with those three Independents will start this week.
On Sunday Mr Lowry confirmed he had been invited by Mr Ahern to negotiate with Fianna Fáil about his involvement in a "cross-party alliance".
Last night Mr Healy-Rae confirmed he had also received such an invitation. He told The Irish Times he had passed on his list of "problem areas" in relation to his constituency, and he would be talking with Fianna Fáil "in a few days".
PD leader Mary Harney has been kept informed directly by Mr Ahern of developments, and was aware of Fianna Fáil's plan to talk to the Greens. She will have further discussions with the Taoiseach this week.
The Green Party has called a special party convention for the Mansion House on Sunday, and is hoping to have a deal with Fianna Fáil by then to bring to its members for approval.
Yesterday's talks started at 11am and finished shortly after 4pm.
Ministers Brian Cowen, Séamus Brennan and Noel Dempsey make up the Fianna Fáil negotiating team, while Green Party chairman John Gormley, Dan Boyle (who lost his seat in Cork South Central) and general secretary Dónall Geoghegan make up the Green Party team.
Both sides said the mood was positive and cordial, and while a lot of issues remained outstanding some progress was made.
Mr Brennan said the sides were "able to make very good progress on a whole range of departments", including social welfare.
Mr Gormley said the Greens were "hopeful we can conclude successful negotiations".
They had not yet talked about the possible eventual make-up of the government, and would not be doing so until "the very end".
He stressed that anything agreed had to go back to what he called the party's "reference group".
"Clearly, there are policy differences between our respective parties, but we are in there to negotiate and we are doing the best not just for our party but we hope for the people of this country as well."
Mr Brennan said the mood was very positive at yesterday's meeting, and the sides had started to go through documentation department by department, and area by area. Difficult issues had been "scoped out" and in the course of the week would be returned to.
Asked about the state of play with talks on the inclusion of the PDs and Independents, Mr Brennan said the matter of a government formation generally was for the Taoiseach and others. "I don't want to run ahead of things. We are at the end of two days of discussion and on a particular project and we are making progress."