The Northern Secretary, Dr John Reid, must decide within the next 48 hours whether to suspend the Assembly or call fresh elections. With the effective deadline for agreement between the parties passing yesterday, an announcement from Dr Reid is expected soon.
Last night it looked likely he would opt for temporary suspension. Under Section 3 of the Northern Ireland Act 2000, he could then quickly restore the Assembly, allowing for another six-week period to reach a deal.
The Taoiseach and Mr Blair are understood to be in contact by telephone from their respective holiday homes in Co Kerry and Mexico.
A last-minute statement from the Provisional IRA failed to satisfy Ulster Unionist demands yesterday.
Mr David Trimble said he needed actual decommissioning. "We have had words, we have had promises, promises have not been kept. The only thing that will create public confidence is for it to happen."
The UUP, Sinn Fein, and the SDLP all held separate meetings with Dr Reid at Hillsborough Castle, Co Down, yesterday but there was no breakthrough. The Ulster Unionists argued for suspension of the Assembly, whereas Sinn Fein favoured fresh elections.
Mr Gerry Adams said if Dr Reid opted for suspension, the British government would be seen to be pandering to unionists. Suspension would also cause a credibility crisis for the institutions among nationalists, he said.
Mr Trimble, who leaves for a holiday in Austria today, warned that failure to secure decommissioning would be a "great dark stain" on the records of the British and Irish governments.
DUP deputy leader Mr Peter Robinson said that Dr Reid would suspend the Assembly. The British government knew that in any new elections "the DUP would trounce the Ulster Unionists", he said.
Unionist sources last night predicted that following suspension of the Assembly, Dr Reid would publish the British government's policing implementation plan - a key demand for nationalists before they sign up to the new police force. Substantial pressure would then be applied on the IRA to move on decommissioning, they said.
Last night, Government sources said they expected a decision on suspension of the Assembly or fresh elections by today or early tomorrow.