Pakistan's two largest political parties have today agreed to form a government of national unity, in a deal that puts President Pervez Musharraf's political future in doubt.

Asif Ali Zardari, who took charge of the Pakistan People's Party after his wife Benazir Bhutto was killed during the election campaign, has reached agreement with Mr Sharif and his rival Muslim League party.

A government is expected to be formed within the next ten days, when Pakistan's parliament, the National Assembly is expected to meet for the first time since elections last month.

Top of the government's agenda will be moves to change the constitution to strip the president of his power to dismiss parliament and the government at will.

The effect of this, political observers say, will be to relieve Mr Musharraf of his executive powers and leave him a lame duck president.

In reaching today's landmark political deal, both sides have shown flexibility in agreeing to compromise on the issues that had been dividing them since the general election last month.

Mr Sharif and his Muslim League have agreed to set aside their refusal to take part in government so long as Mr Musharraf - who deposed Mr Sharif in a military coup eight years ago - remains as president.

Mr Zardari and the PPP have in their turn agreed to Mr Sharif's demand for the reinstatement of all the judges who were sacked by Mr Musharraf last year to prevent them declaring his presidency illegal. Parliament will vote to restore the Supreme Court and high court judges within a month, it was agreed.

“The coalition partners are ready to form the government,” Mr Sharif said today at a news conference at a hill station in the foothills of the Himalayas, reading from an agreed statement with Mr Zardari at his side.

Both men beamed as they signed documents confirming the deal. The president should convene the new parliament “immediately”, Mr Sharif said.

The two parties won a landslide victory in February 18 elections, trouncing Mr Musharraf’s closest allies and raising doubts about the political survival of a leading figure in the US-led war on terrorism.

It has yet to be announced who will take the role of prime minister, but the new leader will come from the Pakistan People’s Party, which won the most seats in the parliamentary vote.

An agreement has been reached that historic corruption charges against Mr Zardari should be dropped.

It is understood that both men felt that the worsening state of Pakistan's economy and the upsurge in Islamist violence, with hundreds dead in a string of suicide attacks, made it vital to bury their differences for the good of their country.

Zahid Hussain, Times correspondent in Islamabad, said today's deal was a major development that posed a serious setback to Mr Musharraf's hopes of remaining in power.

"They have agreed to strip Musharraf of his power to sack the parliament, and once they have done that he will become a completely lame duck president," said Hussain.

"He will either step down or be impeached."

The new head of the army signalled earlier this week that, for once, the military would not intervene in politics to save Mr Musharraf, who only resigned as army chief of staff late last year.

Today's deal thus opened a real prospect of democracy being restored, said Hussain.

"The imbalance in power has been the major obstacle to real democracy in Pakistan," he said.

"Power will now shift back into Parliament, which is a very good thing.

"Musharraf cannot do anything about it at this point, as Parliament has only just been elected.

"The army has signalled that they will support the elected government and will not be partisan. They won't come to the rescue of Musharraf, which makes him much more vulnerable. Now it all depends on him how long he remains in power."

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