Indications of a breakthrough came as North Korea has raised the stakes by apparently making saber-rattling moves and barring U.N. monitors from its plant that makes bomb-grade plutonium.
ABC news quoted senior U.S. officials as saying the North may be preparing for another nuclear test after it was seen moving cables and tunneling at the site of its only previous test in October 2006.
South Korean daily Chosun Ilbo on Friday quoted government sources as saying North Korea and the United States were near an agreement on verifying Pyongyang's account of its nuclear program that would prompt Washington to soon remove it from a list of countries that sponsor terrorism.
The Washington Post reported on Thursday the Bush team looked set to provisionally remove the North from the State Department's terrorism blacklist, as early as Friday.
South Korea's foreign minister said Washington will soon make a decision that will hopefully lead to removing the North from the State Department terrorism blacklist.
"If we stall at this point, it will be difficult to jump-start the process under the new U.S. administration," Yu Myung-hwan told reporters.
Yu indicated that Washington may be about to accept a compromise by focusing initial verification on the North's known nuclear facilities and leave to a later stage undeclared installations and a suspected uranium enrichment program.
The disarmament deal appeared to be in peril after Pyongyang, angry at not being removed from the list, vowed last month to rebuild its Yongbyon nuclear plant. Once removed from the list, the isolated North would see an end to many trade sanctions.
Japan has voiced its reservations about removing the North from the list, feeling that it may not be an appropriate move to make without first resolving a long-simmering feud over its nationals kidnapped decades ago by North Korean agents.
"We expect the United States to tell us before making a final decision and if we think that it is enough, or enough to some extent, to resolve the nuclear issue, then I think it would be fine," Foreign Minister Hirofumi Nakasone told a news conference.
Tokyo also said it would extend its sanctions on North Korea, including a ban on imports, for another six months after they expire on Monday, because of a lack of progress on both the issues of denuclearization and abductees.
MISSILES AND ENVOYS
U.S. nuclear envoy Christopher Hill, who went to Pyongyang last week to save the disarmament-for-aid deal the North struck with China, Japan, Russia, South Korea and the United States, has mostly been silent about his discussions.
The South Korean daily Dong-a Ilbo reported diplomatic sources as saying as a result of the Hill trip, the North agreed to allow nuclear inspectors into the secretive country for incremental checks.
The reports of a deal came as North Korea deployed more than 10 short-range missiles on its west coast for a possible launch, the Chosun Ilbo reported.
On Tuesday, the North fired two short-range missiles into the Yellow Sea in a move seen as consistent with its tendency at times of political tension to display its readiness to take a hard and defiant line.