Gyanendra became king after the notorious 2001 palace massacre

Under the deal, Nepal will be declared a republic after a general election has been held next year and a new constituent assembly established.

The Maoists pulled out of the government in September, demanding an immediate end to the monarchy.

The latest deal was signed by Nepal's main parties, including the Maoists.

However no date has been set for the ex-rebels to rejoin the government.

Austere king

The BBC's Charles Haviland in Nepal says that, while a milestone, the move is no surprise.

The Maoists have not stopped using violence from time to time

The Maoists walked out of the government three months ago, vowing not to return unless the royal system was scrapped.

They have now secured what they wanted, even though the other parties in the ruling coalition had said, up to now, that voters should decide on the issue via the new assembly, our correspondent adds.

Analysts say that many Nepalis will be happy to have a republic.

Since the death of the well-loved King Birendra in the notorious palace massacre of 2001, the monarchy's popularity has sunk under his brother, Gyanendra - whose efforts to counter the Maoist insurgency led to a worsening of the country's human rights situation.

The Maoists called a ceasefire after the king ended his controversial direct rule in April 2006 and restored parliament.

The king backed down after weeks of strikes and protests against his rule which saw huge demonstrations against him.

Political parties - who were then in opposition and are now in government - had promised to work with the Maoists as a prelude to bringing them into government.

The political crisis came amid a rise in ethnic and religious tension, as regional groups strove to assert their authority in advance of the elections.