Foreign officials said on Thursday that talks late into the night had resolved arguments that had threatened to break-up the coalition.
Among changes agreed, the movement of nationalist cleric Muqtada al-Sadr would have a more formal role in the alliance, Abbas al-Bayati, an Alliance member of parliament, told Reuters.
A formal announcement would be made later in the day, he added. Three principle Shia movements are involved in the alliance - the powerful Supreme Council for the Islamic Revolution in Iraq (SCIRI) formed in exile in Iran to oppose Saddam Hussein and led by Abdul Aziz al-Hakim, the Dawa party of Prime Minister Ibrahim Jaafari, and al-Sadr's movement.
Although al-Sadr has three allies in the present interim cabinet, he has been ambivalent in public about the government.
In other news, Sunni Arab fighters killed 14 Shia militiamen and a policeman on Thursday in a clash southeast of Baghdad - another sign of rising tensions among Iraq's rival ethnic and religious communities.
The US military reported three more American soldiers died in combat.
Relatives of a police officer killed
in Kirkuk weep outside a hospital
The Shia-Sunni fighting occurred after police and Shia militiamen loyal to al-Sadr raided a house in Nahrawan, 25km southeast of the capital, to free a militiaman taken hostage by Sunni fighters, according to Amer al-Husseini, an aide to al-Sadr.
After freeing the hostage and capturing two fighters, the Shia militiamen were ambushed by the Sunnis on their way out of the religiously mixed town, al-Husseini said. Police Lieutenant Thair Mahmoud said 14 others - 12 militiamen and two policemen - were wounded.
In the oil-rich Kirkuk city, 290km north of Baghdad, police Lieutenant-Colonel Arjuman Said died of wounds he had suffered the day before when he was hit by a drive-by shooting in front of his home, said police Brigadier Sarhad Qadir.
A car bomber attacked a US military convoy in central Baghdad on Thursday, killing one Iraqi civilian and wounding four, police said.
US aircraft also fired on safe houses near the Syrian border, apparently killing a senior al-Qaida figure in Iraq who was allegedly using religious courts to try Iraqis who supported foreign forces.
Al-Jaafari's government is said
to have disappointed al-Sistani
According to an AP report, Iraq's leading Shia cleric, Ayat Allah Ali al-Sistani, has decided not to endorse the Shia coalition which ran under his banner in January, according to associates on both sides.
Close associates said al-Sistani's decision reflected his disappointment with Prime Minister Ibrahim al-Jaafari's Shia-led government.
Al-Sistani's endorsement of the Shia coalition was seen as the principal reason for its success in the 30 January election.
If al-Sistani does not change his stance, the December election could produce a major realignment of the country's political landscape.
Parties and coalitions have until Friday to get their names on the ballot paper for the 15 December vote.
Sunni parties unite
Also on Wednesday, three Sunni Arab groups - the General Conference for the People of Iraq, the Iraqi Islamic Party and the Iraqi National Dialogue - joined forces to field candidates in the election, which was made possible by Iraq's newly ratified constitution.
Most Sunni Arabs voted in the
referendum on 15 October
But an influential group of Sunni Arab clerics, the Association of Muslim Scholars, denounced the constitution and said they would not join the political process.
Those contradictory statements signalled confusion within the minority Sunni Arab community over how to go forward, after it failed to block ratification of the new constitution in the 15 October referendum.
Many Sunnis opposed the document, fearing it could lead to the breakup of the country into semi-autonomous regions favouring rival Kurds and Shias.
Sunni Arabs had also largely boycotted Iraq's 30 January election, enabling the Shias and Kurds to win an overwhelming majority in parliament and shape the constitution.