Italian President Giorgio Napolitano has called Enrico Letta, deputy head of the centre-left Democratic Party, to the Quirinale Palace, indicating he was likely to be asked to form a new coalition government.
The new government, which could take office in a matter of days, would be backed primarily by the rival centre-left and centre-right groupings, which had hitherto refused to cut a deal following inconclusive elections in late February.
Formation of a government would end two months of damaging political impasse in Italy and send a signal to markets that the country might at last be ready to make a start on much-needed reforms.
Letta, the nephew of former prime minister Silvio Berlusconi's long-time chief of staff Gianni Letta, is considered a moderate. He is close to former party leader Pier Luigi Bersani, who resigned at the weekend after rebels sabotaged him in the voting for a new president, which ended with Napolitano being re-elected.
Berlusconi's People of Freedom (PDL) party, Letta's PD and the centrist Civic Choice movement of outgoing premier Mario Monti have all said they will cooperate with whomever Napolitano chooses.
"Given the crisis the country finds itself in, the country needs a strong, a durable government that can make important decisions," Berlusconi said after meeting Napolitano.
Letta said on Tuesday his party would back any government committed to tackling the "social-economic emergency," and enacting serious political reform, including changes to a dysfunctional electoral law considered largely responsible for the two-month long political stalemate.
In February's general election, the centre-left narrowly won a majority in the lower house but failed to win control of the Senate and was not able to form a government.
Hopes that the deadlock would soon be over have given a further boost to financial markets, with the yield on 10-year Italian government bonds dropping below 4 percent and the spread, or risk premium over German bonds, narrowing.
Italy's economy has been the most sluggish in Europe for more than a decade and mired in a deep recession since the middle of 2011, with no recovery in sight.
POLITICAL "IRRESPONSIBILITY"
Napolitano angrily scolded the parties on Monday when he was inaugurated for an unprecedented second term, berating them for their "irresponsibility" in prolonging the political stalemate for nearly two months.
He threatened to resign unless the parties agreed to cooperate and find some middle ground on reforms.
The PD has emerged the most scarred from the crisis and its fractures could threaten the stability of the next government given the hostility among many in the party to any deal with Berlusconi, their enemy for almost two decades.
Deep internal divisions worsened when Bersani was unable to make a government deal with either Berlusconi's centre-right or the shock new third political force, Beppe Grillo's 5-Star Movement.
Berlusconi has capitalised on the centre-left's woes. One poll gave the centre-right a clear lead of around 8 points.
The anti-establishment 5-Star Movement, which won a quarter of the vote and speaks for millions of Italians disillusioned with an entire political class, told Napolitano it would sit in opposition and may support specific reforms.
The Left Ecology Freedom party (SEL), a partner of the PD in the February election, and Berlusconi's allies in the Northern League also said they would not join a coalition led by Amato.