Sinn Fein and the DUP have made a "positive" response to Prime Minister Tony Blair's comments on the political situation, the government has said.
Mr Blair came home early from holiday to try to revive hopes of devolution returning by the end of March.
He said commitments on policing and power-sharing must be honoured for an assembly election to happen.
"I am confident both parties want to see progress and will honour their commitments," he said.
"But there is no point in proceeding unless there is such clarity."
Mr Blair, who cut short a holiday in Florida by a day, said that if Sinn Fein delivered on supporting the police, there should be devolution of justice by May 2008, as set out in the St Andrews Agreement.
He said Sinn Fein would propose to a special conference on policing that the party "commit now and fully to support the PSNI and the criminal justice system and actively encourage everyone to co-operate fully with the police services in tackling crime in all areas as well as actively supporting all the criminal justice institutions".
"For their part, the DUP require that the Sinn Fein commitments to support the police, the courts and the rule of law are translated into action so that there is real and tangible evidence of such support.
"It is delivery on those commitments that creates the conditions for devolution of policing and justice to take place.
"When there is delivery, there will be devolution."
Mr Blair said he was "confident that both parties want to see progress and will honour their commitments".
"But there is no point in proceeding unless there is such clarity," he added.
Policing has been a dividing issue between the DUP and Sinn Fein
Sinn Fein president Gerry Adams said Mr Blair had reflected in his statement the basic elements of the motion he would put to his party on policing.
The West Belfast MP said: "The core of a motion I would put to a Sinn Fein ard fheis is accurately summarised in the British prime minister's statement today."
Sinn Fein's leadership voted last month to hold a conference on the issue of whether to support policing.
But the party signalled on Wednesday this was in doubt because the move had not received a "positive enough" response from DUP leader Ian Paisley.
If the conference does not go ahead, the March election may be in doubt.
Although Mr Blair was away on his Christmas and New Year break, he was involved in intensive discussions with Northern Ireland politicians.
More than two-thirds of Sinn Fein's executive last week voted in favour of holding a conference on the issue of supporting policing.
Irish Foreign MinisterDermot Ahern said clarity was needed before the end of January from the parties, but welcomed Sinn Fein's acceptance of Tony Blair's statement.
He said that the "pendulum was moving" towards the DUP on how willing it was to share power.
He said the party also needed to commit on the devolution of policing and justice powers taking place on or before May 2008.
"We're under no illusion that it is going to continue to be difficult over the next couple of weeks," he said.
DUP leader Ian Paisley said they were willing to make progress but that "upfront delivery is required from Sinn Fein" on policing.
"There can be no movement unless we have clarity on the need for everyone to support the rule of law," he said.
"The prime minister is well aware that we are willing to make progress on a level playing field when there is full support for, and co-operation with the police.
"The time for action from Sinn Fein is now."
The Northern Ireland Office in a statement said: "It is positive that the leadership of both Sinn Fein and the DUP have accepted and welcomed the prime minister's assessment as set out in his statement today.
"We believe that the parties can move forward on that basis within the timeframe of the St Andrews Agreement."
However, the North Belfast DUP MP Nigel Dodds, said that the 2008 target date had not been agreed by his party and would not be.
"The DUP has made it clear consistently that there will be no timetable for the devolution of policing and justice powers agreed by us," he said.
"Such a timetable or target date is a purely republican demand only. It was not required of us at St Andrews and we are not about to renegotiate something on which our party's position is well settled."