Pakistan claims it has resolved differences with the country's religious schools, or madrassas, which have agreed to register with the government.
Prime Minister Shaukat Aziz announced the agreement Friday after negotiations with the Ittehad-e-Madaris, the informal name of a representative group from the religious schools.
"Ittehad has agreed to go ahead with the registration as soon as possible and the deadline we had set, December 31, will be honored," he said.
Pakistan's President Pervez Musharraf vowed to register the schools and expel foreign students after the terrorist bombings in London earlier this year.
It turned out that one of the alleged bombers had visited a Pakistani madrassa a few months before he and others staged the deadly attacks.
The Islamic schools, and there are more than 13,000 in Pakistan, initially refused to cooperate unless the government dropped a demand that they disclose their sources of funding.
The new agreement reportedly withdraws that requirement, and it will not be enacted until approved by the national parliament.
The madrassas play a divided role in Pakistan, where even public schools are beyond the economic reach of millions of impoverished families.
The Islamic schools are both widespread and often provide a free education and at least one meal a day.
But most madrassas focus exclusively on religious instruction, and, sometimes, a militant brand of Islam, which the government here says can lead to sectarianism and, as was possibly the case in London, terrorism.
Pakistan's powerful religious leaders accuse the government of caving in to international and anti-Islamic pressure to shut the schools down.
President Musharraf insists the country's registration policy is aimed at only a handful of controversial schools that preach extremism.
Friday, Prime Minister Aziz said the schools in general play a positive role, and the new agreement will help reinforce their ties to mainstream Pakistani society.
"If we have them and they are run in line with a code of conduct, in an atmosphere that propagates peace and education and tolerance and interfaith harmony, I think this is a positive step," said Mr. Aziz.
It remains less clear what the government's position will be on admitting foreign students to study at the madrassas.
Religious leaders say they asked the Prime Minister for the ban on foreigners to be overturned, but a final decision has not been made public.