The two parties in Austria's previous government -- the Social Democrats and the centre-right People's Party -- have agreed to form a new coalition, even though they're still discussing the division of cabinet seats.

Both parties have agreed on a joint policy programme, after three months of deadlock following general elections. A number of the People's Party's key election pledges, including a potentially controversial pension reform, are reported to be included in the programme. Correspondents say the Austrian President, Thomas Klestiel, was instrumental in persuading the parties to form another coalition after fears that a government with the far-right Freedom Party -- which came second in last October's elections -- would damage the country's standing abroad. The Freedom Party leader, Joerg Haider, has sparked international controversy with remarks about the Nazi era.

Israel has threatened to cut off ties with Austria if Mr Haider comes to power.

From the newsroom of the BBC World Service