SINN FEIN and the Democratic Unionist party want a £1 billion (€1.4 billion) “peace fund” as part of the price of forming a power-sharing government The deadline for the two parties to reach agreement has been extended to next Tuesday but Ian Paisley, the DUP leader, has said he cannot recommend a deal to his party, whose executive meets on Friday, without an answer about the money.

The fund was the DUP’s idea but Sinn Fein supports it, making it a rare area of agreement which the British government will find difficult to ignore.

Paisley says it is needed to improve Northern Ireland’s infrastructure and would be covered by savings in security spending. When the Good Friday agreement was signed a “peace dividend” based on reduced spending on security, prisons and compensation was promised.

The DUP argues that more than 30 years of direct rule by Britain has meant that the north’s infrastructure has fallen into disrepair. The water and sewage systems need replacing and unless separately funded this will result in water charges of about £400 per household — much higher than in Britain.

A British government official said any package would have to be approved by Gordon Brown, the chancellor of the exchequer, as well as No 10 and the Northern Ireland Office.

There are still big differences between Sinn Fein and the DUP on other issues and the two parties have yet to meet. Negotiations are being conducted in a form of shuttle diplomacy by senior British and Irish officials including Jonathan Powell, Tony Blair’s chief of staff.

The IRA has agreed that, if power sharing is restored and there is a timetable for devolving policing powers to a local assembly, it will decommission all weapons by Christmas. The terrorist group is willing to allow two senior clergy to witness the process, alongside John de Chastelain, the Canadian general who verifies decommissioning.

Under the British and Irish proposals, the DUP must issue a statement saying that it will enter government with Sinn Fein if republicans complete decommissioning and end para-military activity.

Although the parties are getting closer all the time it is unlikely that the new deadline will be met.

Over the next week a further round of meetings with local parties in Downing Street is likely.

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