Garang (left) has been locked in talks with the vice president (centre)
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The government of Sudan and the rebel Sudan People's Liberation Army (SPLA) have agreed on security arrangements for the south of the country.
This has been the main stumbling block at peace talks that have been taking place in the Kenyan town of Naivasha.
Under the deal Sudan will have two armies under separate command and control during a six-year interim period.
"The SPLA army will be commanded by the movement's political leader, John Garang, while the government forces will be commanded by President Hassan al-Bashir," the SPLA spokesman, Samson Kwaje, told BBC News Online.
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Sudan peace deal
Two armies for Sudan
80% of government soldiers in the south to be withdrawn
20,000-man joint unit in areas of conflict
Bashir to be C-in-C
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About two million people have been killed in the country's 20-year war between the government and rebels based in southern Sudan.
Both sides now say they intend to continue negotiations until a comprehensive peace agreement is reached.
Breakthrough
Mr Kwaje said that 80% of the government forces currently in southern Sudan will be withdrawn to the north within the first two years after the signing of a comprehensive peace agreement, leaving about 10,000 troops in the area.
The SPLA will be allowed to keep 80% of its forces in southern Sudan for the six-year interim period.
The breakthrough follows high-level talks in Kenya between Mr Garang and the Sudanese Vice President, Ali Osman Taha, on introducing a six-year period of self-rule in the south, which is mainly controlled by the rebels.
Under the deal reached on Wednesday both sides will contribute around 10,000 troops to serve in a joint unit to be deployed in areas of conflict whose commander-in-chief will be the president of Sudan.
The main outstanding issues include the modalities of how to share power and the country's immense oil wealth, most of it concentrated in southern Sudan.
The BBC's East Africa correspondent Andrew Harding says after 20 years of war and broken promises, the two armies are deeply distrustful of each other.
He says the main threat to the peace process now comes from the capital, Khartoum, where hardliners in the Islamic government fear the south is heading inexorably towards independence.
Under an agreement signed in Kenya in July 2002, the government and the SPLA reached a deal known as the Machakos Protocol, under which the government accepted the right of southerners to self-determination through a referendum after six years.
The rebels in turn accepted the continuing of Islamic Sharia law in the north.