Participants in Yemen's national reconciliation talks have agreed on the principle of changing the Arab republic into a federal state, Foreign Minister Abu Bakr al-Kurbi said on Wednesday.
"There is an agreement on the principle of federalism," Kurbi told AFP on the sidelines of a conference in Dubai.
But differences remain on the number of regions proposed by each party, he said.
Southern delegates to the national dialogue are demanding a federal state consisting of north and south Yemen, while northerners are proposing more than two entities, according to sources close to the talks.
The minister said he hoped the dialogue would end as scheduled on September 18, adding that if necessary the talks would be extended by one week.
The dialogue, part of a UN-brokered power transfer deal, is aimed at drafting a new constitution and preparing for elections in February 2014.
Kurbi also said that two compensation funds are planned, one to help reconstruction of the country's northern and southern regions, scenes to several wars over many years, while the second would compensate victims of political violence.
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Yemen's government on August 21 apologised to the southerners and northern rebels for wars waged against them by the state under former leader Ali Abdullah Saleh, who stepped down in February 2012 after a year of nationwide protests.
Southern separatists on Monday returned to the talks after staging a walkout last month over various demands, including that the talks be held abroad.
The Southern Movement had demanded the creation of a special committee in the dialogue, made up of an equal number of northern and southern representatives, to discuss the future of links between the south and Sanaa.
This demand has been met and a committee of 16 members began looking into the future form of the state, including a federation or a confederation encompassing the regions of the Arabian Peninsula nation.
Southerners are also demanding the reinstatement or compensation of some 70,000 civil servants, military and police officials said to have been unfairly fired or sent into early retirement under Saleh.
After north and south Yemen united in 1990, southern leaders led a short-lived breakaway in 1994 that sparked a civil war that culminated in occupation by northern troops.
Hardline factions of the Southern Movement, demanding secession, have boycotted the talks since they began in March.
The dialogue is part of a Gulf-brokered initiative that ended the protests and paved the way for a transitional period led by Abdrabuh Mansur Hadi, who was Saleh's deputy at the time.