US and UK officials have praised Iraq's Governing Council for agreeing a temporary constitution.
The council debated into the night before reaching agreement
US Secretary of State Colin Powell described the document as "a major achievement" and Prime Minister Tony Blair said it was a "foundation stone".
Consensus was reached after days of talks by the country's interim leaders, and top US administrator Paul Bremer will sign the charter on Wednesday.
Members overcame differences on issues such as Islamic law and women's rights.
Council member Adnan Pachachi said the document included a bill of rights, something which was "unprecedented in this part of the world".
UK Foreign Secretary Jack Straw said democratic reform was a matter of urgency throughout the Arab world.
Iraq will have a president, two deputies, a prime minister and a cabinet
Bill of rights includes protections for free speech and religious expression
Women should make up 25% of assembly
Islam will be one of a number of legislation sources
Kurds remain autonomous
"We in Britain, and in Europe, want the Arab world to be stable and prosperous," he said.
"As many in the region recognise, if it falls behind the global trend towards greater freedoms and development its stability and prosperity will be under threat."
The draft charter will recognise Islam as one source of legislation rather than the only source, and gives autonomy to the Kurdish minority for now.
A coalition official said the agreed charter "strikes a balance between the role of Islam and the bill of individual rights and democratic principles".
The deal came on Monday - two days after a deadline for finishing the document.
When Saturday's deadline - a key part of US plans for handing over power to Iraqis by 30 June - passed without agreement, American officials helped to mediate.
The coalition-appointed council had to decide what kind of country they want Iraq to be once the formal occupation ends and sovereignty returns.
Mr Pachachi, a Sunni council member, said members had to overcome deep divisions on many issues, but did so by consensus and without having to take a single vote.
"The result is that after several months of hard work we have been able to reach agreement on all substantial issues before us," he told a press conference.
He described the event as "historic for Iraq" and a "unique" day for the region as a whole.
"This document not only reflects agreement on many wider aspects of Iraqi society, it is also an aspirational document which looks to the future," he said.
The most contentious issue was what role Islam should play in determining state legislation, and what would be the future of Iraq's ethnic Kurds.
In the end it was a classic compromise, says the BBC's Caroline Hawley in Baghdad.
They fell in line with the US by agreeing that Islam should be a source of legislation, not the single source as some religious conservatives wanted.
However, they also said no legislation should be passed that was deemed to contravene Islam.
Our correspondent says the issue of the Iraqi Kurds' future was essentially deferred. They are to remain autonomous, but a permanent constitution will at a later date determine the exact nature of their self-government.
Women can also now hope for 25% of seats in a new national assembly, although this is a goal, not a specific quota.
The document also stipulates that Iraq will have a president, two deputies, a prime minister and a cabinet.
The bill of rights includes protections for free speech and religious expression.
A coalition official, speaking on condition of anonymity, said Mr Bremer would approve the final document on Wednesday, after the Shia Muslim religious holiday of Ashura ended.