Officials attending the talks in Kenya said the government and the rebels were haggling hard and several differences still remained to be peppered over.
But Sudanese state-run al Anbaa daily said the two sides were poised to sign a deal paving the way for a final peace agreement.
Officials said the government and representatives of the southern rebels were focusing on the co-existence of the two armies during the planned interim six-year period of self-rule for southern Sudan.
Though both sides have tentatively agreed on the plan, it would come into effect only when a comprehensive peace accord is signed.
"The talks are progressing, but still no major concessions on the key issues, although the leaders are working towards agreeing on common political principles," an official said.
Sudan People's Liberation Army (SPLA) wants to keep its forces intact during an interim period of self-rule for the south, but Khartoum wants the army disbanded to prevent the oil-rich south's secession.
More than 1.5 million people have died in the civil war which erupted in 1983. Another four million have been displaced.