"The talks were very positive. We have broken the ice," said Ambassador Mohamed Bennouna of Morocco, chairman of the UN General Assembly's treaty-writing legal committee on Friday.
The panel, which ended five days of talks on Monday, has scheduled another week of informal talks in early September before its next working session on 10 October.
The draft "comprehensive convention on international terrorism" aims to give nations new tools and a strong legal framework to fight terrorism collectively but has been stuck in the UN committee since India first proposed it in 1996.
Each of the 191 UN nations has a seat on the panel.
The dispute centres on how to define terrorism and whether Palestinian suicide bombings should be excluded from the pact.
After a recent wave of bombings, UN Secretary-General Kofi Annan challenged the panel to complete work on the treaty by the end of this year.
He has suggested a simple statement defining terrorism as any intentional maiming or killing of civilians, regardless of motive.
Arab delegates until now have argued the UN Charter's assertion of a right to self-determination authorises national liberation movements - such as the Palestinians' - to fight foreign occupation, even with tactics such as bombings.
Palestinians' right to resist foreign
occupation has been an issue
But during this week's informal talks, some Arab and Western nations laid out a potential path to a compromise, exploring the possibility of adding language referring to the right of self-determination to the treaty's preamble rather than to its operative provisions.
"While there was no breakthrough, there has been more progress this week than in the past three years," said one Western diplomat, speaking on condition of anonymity.
"But at least some in the Organisation of the Islamic Conference remain fixed on having an exclusion for freedom fighters in the definition," this diplomat said.
After last weekend's deadly attacks in Egypt, drafters took heart from a statement issued by Ekmeleddin Ihsanoglu, the OIC secretary-general, who urged a collective Muslim response to such bombings including the adoption of "new measures to eradicate this scourge".
"Terrorism ... has inflicted so much damage and brought nothing but harm to the Muslim world and its standing..."
"Terrorism ... has inflicted so much damage and brought nothing but harm to the Muslim world and its standing, particularly by demonising the image and reputation of Muslims in the eyes of the world," Ihsanoglu said in the statement.
In addition to the attacks in Egypt, which killed 64 people, London's mass transit system was hit by bombs that killed 56 people on 7 July and two weeks later suspected bombers failed in attempts to set off four more.