The Conservatives indicated tonight that they would support the Government's new anti-terror Bill and claimed victory after a gruelling battle of nerves over control orders for terror suspects.

Conservative and Liberal Democrat peers had repeatedly rejected the legislation by passing amendments to it that the Government said it could not accept - including a "sunset clause" that would see the legislation expire in a year's time.

Then Charles Clarke, the Home Secretary, signalled a compromise - his opponents will call it a climbdown - by saying that both houses of Parliament would have a full chance to debate and, if necessary amend, new anti-terror legislation that will replace the new law from July 2006.

Michael Howard, the Conservative leader, said that amounted to a sunset clause in "all but name" and indicated that the Conservatives would now let the Prevention of Terrorism Bill onto the statute books before the current emergency powers expire on Sunday. "Our bottom line has always been the sunset clause," he said. "That is what we have now been given."

The legislation will now return to the Lords tonight. David Heath, the Liberal Democrat spokesman, suggested that the Home Secretary’s timetable could provide a way through the impasse. "I believe we must now talk sensibly about how we can bring these proceedings to a close that is to our satisfaction."

The compromise ended a political deadlock that lasted more than 24 hours and saw an almost unprecedented overnight sitting of both chambers. The Bill ping-ponged no less than four times as the two camps engaged on a gruelling battle of brinksmanship. In the end, it was the Government that appeared to blink first.

With the current law expiring, the Special Immigration Appeals Commission (Siac), was forced today to grant bail - although with severe conditions - to eight foreign terror suspects who have been held without trial for up to three and a half years. Among them was Abu Qatada, a radical Islamist cleric who Spanish judges say inspired the Madrid bombings exactly one year ago today.

But that bail runs out on Sunday and under the new law, Mr Clarke will now be able to impose emergency control orders on the eight men, which will then need to be ratified by a judge.

Mr Clarke told MPs during his statement that terrorists would think that they can "thrive" in Britain if a sunset clause was included in anti-terror legislation. But he pledged to introduce legislation in draft form in the autumn with time for pre-legislative scrutiny with a new Counter-Terrorism Bill in the Commons by spring 2006.

"The reason I want to propose (this) course of action is that we know after this ping-pong that very many colleagues in the Lords understand that in a democracy it is right that the will of the elected House should prevail," Mr Clarke said. "But I do want to make a positive course of action."

Under the proposed timetable, if accepted by the Opposition, Parliament would pass the Prevention of Terrorism Bill now and renew it in a year's time. The draft legislation to replace it would be published in the autumn and a first report of the independent reviewer monitoring the Prevention of Terrorism Act would be laid before Parliament.

The Counter-Terrorism Bill would be introduced into the Commons in the spring of 2006 and, according to the timetable, would become law in July 2006.

At a briefing after Mr Clarke's announcement, Tony Blair told reporters that the Government could not accept a sunset clause. Nor could it accept the other amendment peers are still insisting on - that the burden of proof against terror suspects be increased before they could be subjected to new Home Office 'control orders'.

"In the light of the very strong vote in the directly elected House of Commons, it would be grossly irresponsible to continue the game of playing about with this legislation when it is so obviously necessary," the Prime Minister said.

Of the compromise, he said:"We have a sensible way through. They should come to their senses, drop this opposition and let us get on with the business of protecting the people of this country."

He added: "Of course, it is the job of Oppositions to oppose Governement, but it shouldn't be opposition for opposition's sake. The idea of the Conservative Party opposing this legislation on civil liberties grounds, frankly, I find a little hard to take."

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