The British government withdrew its controversial Sentences Bill dealing with fugitive and other terror suspects yesterday, conceding that Sinn Féin's opposition made it pointless to proceed.
In a surprise statement to MPs, Northern Secretary Peter Hain abandoned an attempt to quell cross-party opposition at Westminster by way of radical amendment of the Bill.
At the same time Mr Hain sought to regain momentum for the political process in the North on foot of the government's U-turn, insisting 2006 "is a make or break year" for the political parties if they wished to save the Stormont Assembly.
The SDLP and DUP signalled their readiness to respond to Mr Hain's request for dates for the start of "substantial discussions" with the British and Irish governments early next month. However, SDLP leader Mark Durkan stepped up his challenge to Mr Hain to "set a date" for the restoration of the Assembly.
The Irish Times has also learned that talks involving the SDLP, DUP and Ulster Unionists are continuing behind the scenes with a view to "building transparency" into the negotiating process by testing the options favoured by the parties on the floor of the Assembly itself.
During yesterday's Commons exchanges, Mr Hain told DUP deputy leader Peter Robinson he was "not very keen" on the idea of restoring the Assembly without a powersharing executive.
While the DUP wanted to see "real progress on devolution", Mr Robinson told Mr Hain, "it is not always possible to complete a journey in one step", and suggested "a non-executive form of devolution" while confidence was built and Sinn Féin's democratic credentials were "tested".
While insisting on the need for "all-party consent" on any way forward, Mr Hain said this was "an interesting proposition" which could be talked about when dialogue was resumed following publication of the next report by the Independent Monitoring Commission.
British sources last night rejected suggestions that the government had "bowed" to Sinn Féin over the Sentences Bill, insisting that Mr Hain had "stood up to them" by refusing to exclude members of the security forces from its provisions.
His Conservative shadow David Lidington said Mr Hain had done "the right thing", adding that yesterday's announcement had been "good for the House" given the scale of cross-party opposition to the legislation.
However, Mr Durkan said his was "not an unqualified welcome" because the implication of Mr Hain's statement appeared to be that the legislation "might be recycled" at some future point.
Former Conservative party leader Iain Duncan Smith, while welcoming the withdrawal of what he called "a pernicious piece of legislation", added: "I was concerned that it was Sinn Féin who decided the fate of this Bill."
Former Northern Ireland minister Michael Mates echoed the charge that it was the republicans who were "still driving" government decisions.
However, Mr Hain told Tory MPs it was Sinn Féin who had wanted "one-sided justice", and that he did not share their belief that the withdrawal of the Bill would be welcomed by the armed forces.
In his statement Mr Hain said: "Every Northern Ireland party vigorously opposed the Bill - bar Sinn Féin. Now Sinn Féin is opposed because they refuse to accept that this legislation should apply to members of the security forces charged with terrorism-related offences.
"To exclude any members of the security forces who might have been involved in such offences from the provisions of the Bill would not only have been illogical, it would have been indefensible and we would not do it. Closure on the past cannot be one-sided. That was, and is, non-negotiable."
He said Sinn Féin had said it would advise republicans potentially covered by the legislation to have nothing to do with it.
"But if nobody goes through the process, victims, who would have suffered the pain of having to come to terms with this legislation, would have done so for nothing. That is unacceptable, and I am therefore withdrawing the Bill."
Earlier, Northern Ireland security minister David Hanson said he would want to "reflect" on whether members of the IRA could be involved in community-based restorative justice schemes financed by the government.