By Rabindra Mishra
BBC Nepali service
The understanding between Nepal's Maoist rebels and the country's major opposition political parties signifies a huge shift for both groups in their policies towards the monarchy.
Nepal has seen continuous protests against the king
The country has been in increased turmoil ever since King Gyanendra seized power in February, sacking the government and suspending civil liberties.
But it may be some time before it is clear how significant the new accord is.
The Maoist rebels have been fighting for a decade to turn Nepal into a communist republic and have seldom ignored the chance to insult the king.
Since the February royal coup, the major opposition parties have also come to see the king as part of the problem, rather than the solution, to Nepal's many ills.
After the coup, the country's largest political party, the Nepali Congress, decided that it could no longer unconditionally say that the country ought to have a monarchy.
The second largest party, the Communist Party of Nepal-United Marxist Leninist (CPN-UML), went further, deciding that it favoured turning Nepal into a 'democratic republic.'
However, the 12-point common agenda made public this week suggests the possibility of some major shifts in position.
It does not even mention the word 'republic'. It talks only about ending the "autocratic" monarchy. That, analysts say, clearly implies the acceptance of a ceremonial, or constitutional monarchy.
The other 11 points of the joint programme indicate other compromises.
The Maoists have pledged not to engage in violence if their demand for the election for a constituent assembly to chart a fresh political course for Nepal is met.
They have not decided to surrender their arms but have agreed to place them under the supervision of a credible international force during such an election.
The opposition parties have now for the first time agreed among themselves on the need for a constituent assembly.
The international community seems to be cautiously positive about the understanding.
The Nepalese government has not formally responded - that may have to wait for the king to return from a tour of Africa - however, the initial responses have not been enthusiastic.
Senior ministers have been cynical about the deal, which they are saying was reached at the "behest of the foreigners".
That is a veiled reference to recent clandestine meetings in India between the Maoists and the opposition party leaders as well as meetings between the party leaders and foreign diplomats in Kathmandu.
The issue of trust
Elsewhere, the new agreement has produced mixed views.
The Maoists 'would not use violence during constitutional elections'
The editor of Himal South Asian magazine, Kanak Mani Dixit, told the BBC that the Maoists should be given a chance and they should be "tested - if not trusted."
Trust is indeed the key issue.
If what is in the joint programme can be taken as representing the good faith of the rebels, then it is indeed an historic agreement.
The rebels, who have been arguably waging the most successful Maoist insurgency in the world in recent decades, have clearly stated that they are ready to accept multi-party democracy. Moreover they have given indications that they would accept some form of non-autocratic monarchy.
However, the past 10 years indicate that the rebels cannot be relied on to keep their word, says the editor of the People's Review weekly, Pushkar Raj Pradhan.
"Every time they have been in a win-win situation and through out all these years they have very successfully played one constitutional force against another."
Time will tell if that caution is justified.
But what cannot be denied is that Nepal's tri-polar power struggle between the king, the parliamentary political parties and the Maoists seems to be now turning into a bi-polar one.
The opposition parties and the Maoists are not using the word 'alliance'.
But they have agreed to "attack the autocratic monarchy" from their own positions.
The Maoists have also agreed to allow political parties to conduct their activities without intimidation or violence.
Now the ball is in the king's court. The agreement gives the king both a warning and room for compromise.
If he does not compromise, then this week's deal could well turn into a more concrete alliance.
That would be a serious threat for the institution of the monarchy itself, as there is a growing feeling both within and outside the country that the monarchy is becoming an impediment to democracy in Nepal.
However, the agreement also suggests the Maoists are prepared for a massive climb-down in their insistence on the abolition of the monarchy. The recent raucous criticisms of the king by the political parties are also absent in the agreement.
At this stage some argue that the king could not ask for more from the Maoists or the political parties.
Some also think that the softening of positions on the question of the monarchy could not have come without a hint from the king's side that he too would be ready to compromise if the challenge to the throne were withdrawn.
However, there are others who think such softening of positions was a result of the realisation that the country's current conflict cannot be resolved without compromise.
The king has been dismissive to all the national and international reactions during his past 10 months of direct rule.
Does that mean he will give the thumbs down to the deal between the rebels and the political opposition?
We shall have to wait and see.