Ousted Honduran President Manuel Zelaya (R) meets with members of his negotation committee, Honduran Minister of Government and Justice, Victor Meza (L), and Minster of Labour and Social Security, Mayra Mejia (2-L) at the Brazilian embassy in Tegucigalpa. (Orlando Sierra/AFP/Getty Images)
Zelaya was forced into exile by soldiers on June 28 but he crept back into Honduras last month and took refuge in the Brazilian embassy in the capital to avoid arrest.
The coup caused Central America's worst political debacle in years. It has also become a test for U.S. President Barack Obama after he promised better relations with Latin America.
Zelaya's lead negotiator Victor Meza said on Wednesday the two sides agreed on the wording of a settlement including the issue of the leftist's future, but the proposal appeared not to get the approval of the country's de facto leader Roberto Micheletti.
Envoys for both camps meet again on Thursday morning.
"The dialogue has advanced, we hope to quickly achieve a new triumph for Honduras that will allow us to keep living in democracy," Vilma Morales, a negotiator for Micheletti, told local radio.
After months of unruly protests, media crackdowns and aggressive policing, representatives of Zelaya and Micheletti sat down to try to thrash out a solution last week.
Obama has called for Zelaya's return and cut some aid to Honduras but has so far not been able to pressure Micheletti into backing down.
A wealthy rancher who moved to the left after taking office, Zelaya angered conservatives by building close ties to Venezuela's President Hugo Chavez and toying with a reform of the constitution to change term limits for presidents.
The United States and other foreign governments say if democracy is not restored and curbs on the media and civil liberties remain, they may not recognize presidential elections scheduled for Nov 29.
Zelaya says elections called by a government installed in a coup are not legitimate and will set a bad precedent for Latin America's young democracies. His supporters want to boycott the vote.
Rights groups including Amnesty International report a litany of abuses including deaths since the coup.
