US and Iranian officials said they had reached an agreement to end their war and reopen the Strait of Hormuz, a preliminary pact that sent oil prices falling but leaves the fate of Tehran's nuclear programme to further negotiations.
While still a framework, the deal marked the biggest breakthrough towards resolving the conflict that has killed thousands and upended energy markets since it began with joint US-Israeli strikes on Iran in February.
"The Deal with the Islamic Republic of Iran is now complete," US President Donald Trump wrote on social media at around 17:30 in Washington (21:30 GMT) on Sunday. His post came shortly after Pakistani Prime Minister Shehbaz Sharif, whose country has served as a mediator, announced a deal had been struck early on Monday local time.
The memorandum of understanding is scheduled to be officially signed on Friday in Switzerland.
The precise terms were not immediately known. Sharif said in a post on social media that the pact called for, "the immediate and permanent termination of military operations on all fronts, including in Lebanon."
Lebanon has been a sticking point in negotiations, with Israel and Hezbollah ignoring calls from Trump and others to stop their attacks on each other in recent weeks.
In a statement, the secretariat of Iran's Supreme National Security Council said war and military operations on all fronts, including Lebanon, would end permanently starting on Monday night.
Israeli Defence Minister Israel Katz said the Israeli military would remain in security zones in Lebanon, Syria and Gaza indefinitely in order to protect the border and Israeli settlements, adding that he and Prime Minister Benjamin Netanyahu had made that clear to Trump and other US officials.
"If Iran attacks Israel due to the events in Lebanon - we will attack it with all our might and clearly demonstrate to it the power gaps," Katz said.
Iran's deputy foreign minister, Kazem Gharibabadi, said a more expansive agreement on the wider conflict would be negotiated during a 60-day ceasefire period, including sanctions relief for Iran.
The fate of Iran's nuclear programme, another thorny issue, will also be addressed in those later talks, sources previously told Reuters.
Trump said the Strait of Hormuz, a major shipping route for global oil and gas supplies that Iran has effectively shut down for months, would open on Friday, and that he had ordered the end of the US blockade of Iranian ports.
"Ships of the World, start your engines. Let the oil flow!" Trump wrote.
Oil prices fell on the news. Brent crude futures fell four per cent in early trading on Monday while stock markets in Asia jumped.
"The lack of details especially on freedom of shipping is a concern but not one that should constrain markets today," said Sean Callow, a senior FX analyst at ITC Markets.
EU foreign policy chief Kaja Kallas said the deal announced between the United States and Iran marked a "potential breakthrough" in the war and the EU would now weigh how it can be involved in the next phase.
"From economic leverage to nuclear expertise and longstanding relationships with Persian Gulf partners, the EU stands ready to contribute to a sustainable resolution," Kallas said in a post on social media, before a meeting of foreign affairs ministers from the 27 EU member states in Brussels.
Republican Senator Lindsey Graham, a leading Iran hawk, praised the deal but said he would be "watching closely" the coming negotiations on Iran's nuclear programme.
"Under our law, any nuclear deal with Iran will be sent to Congress for review and a vote," he said. "Congratulations to all in getting us to this point."
During his first term, Trump withdrew the US from a 2015 multilateral Iran deal, negotiated by Democratic President Barack Obama, that lifted sanctions on Tehran in exchange for limits on its nuclear programme, including international inspections. Iran responded by ramping up its enrichment of uranium, producing more than 400 kilograms (around 900 pounds) of material at close to bomb-grade purity.
The agreement was sealed despite an Israeli strike on Lebanon on Sunday that drew criticism from both Iran and Trump.
Prime Minister Benjamin Netanyahu has differed with Trump over American demands that Israel curb its military action in Lebanon to allow the United States to reach a deal with Iran. Israel has said it will retain freedom of operations in Lebanon, while Iran has made a full ceasefire there an important component of its demands.
Leaders outside the Middle East, who have kept a wary eye on the conflict, welcomed the announcement. In a joint statement, Britain, Germany, France and Italy said they were prepared to lift sanctions on Iran in response to "clear, verifiable steps" to limit its nuclear programme.
Before the deal was announced, a senior Iranian official told Reuters that, under the terms of the draft, the United States would agree to release $25 billion of frozen Iranian assets.
The Trump administration has previously said any release of Iranian money would only take place once Iran has fulfilled certain conditions under a peace deal.
A US official, also speaking before the announcement, said the agreement would ultimately lead to the dismantling of Iran's nuclear programme, with its stockpile of highly enriched uranium to be destroyed and removed. The senior Iranian official said the draft deal would allow Iran, which denies seeking a nuclear bomb, to dilute its enriched uranium inside the country.
(Reporting by Reuters bureaus; Writing by Lincoln Feast and Joseph Ax; Editing by Stephen Coates, Aidan Lewis)
