On Monday, sources said the army appeared to be close to its main goal of crushing all of Fatah al-Islam's positions on the outskirts of the camp, one month after the fighting began.
The army said it had destroyed one of the group's main positions, the Samed complex, which it said was used as a weapons store and training centre.
"The Palestinian refugees are not being treated properly by Lebanon"
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Security sources said Lebanese troops discovered the bodies of seven Fatah al-Islam fighers in a building where they were checking for boobytraps.
The fighting is Lebanon's worst internal violence since the 1975-1990 civil war. At least 162 people, including 73 soldiers, more than 57 Fatah al-Islam fighters and 32 civilians, have been killed.
The army has slowly encroached on the area controlled by Fatah al-Islam, without entering the camp's official boundaries. Security forces are barred from going into Lebanon's 12 Palestinian refugee camps under a 1969 Arab agreement.
Fighting 'to the death'
Mediation efforts are under way to arrange for a ceasefire, a Palestinian source said. The plan would entail putting the army in full control of all the camp's outskirts and confine the armed group to a small part of it.
Negotiations would then start over the remaining fighters' fate.
Khodr said that under a ceasfire initiative put forth by the Palestine Scholars Association, Fatah al-Islam would hand over more than 60 of its injured fighters to the security forces - consisting of Palestinian factions - in Nahr al-Bared.
Fatah al-Islam would also expel its Arab and foreign fighters, and hand over its weapons to al-Jihad al-Islami, the Muslim Palestinian faction inside the camp.
The joint security force has already been formed and is due to be deployed on Wednesday night, Al Jazeera's correspondent said.
Lebanese authorities have demanded the group surrender, but Fatah al-Islam has vowed to fight to the death.
Fatah al-Islam emerged late last year after its leader, Shaker al-Abssi, and some 200 fighters split from the pro-Syrian Palestinian faction Fatah al-Intifada.
Lebanon's government says Fatah al-Islam is linked to Syrian intelligence, a charge denied by Damascus and the group itself.
|At least two people were killed in an explosion|
in the south of Lebanon [AFP]
Abssi has said he supports al-Qaeda's ideas but has no organisational ties to Osama bin Laden's network.
The owner is the uncle of Jawhar, who happened to be in the shop when the explosion occurred, they said.