By Chris Chivers, New York Times

MOSCOW -- Negotiations for a peace settlement in Nagorno-Karabakh, the contested region in Azerbaijan that slipped into war as the Soviet Union collapsed, have gained ground recently after years of stalemate, raising the possibility of an agreement this year, diplomats familiar with the talks say.

Fighting between Armenians and Azerbaijanis in Nagorno-Karabakh killed at least 18,000 people and displaced more than one million others in the early 1990's. The region, an ethnic-Armenian enclave within the borders of Azerbaijan and a fortified area around it, has been under military occupation by Armenian-backed forces since a cease-fire in 1994, creating a formidable military front in the western mountains of Azerbaijan.

The territory has remained a source of violence and lingering social costs, with expelled civilians living in grim conditions away from the front. Commercial and social contacts between the populations are almost nonexistent, and the conflict has dragged down the region's economic development and threatened its stability.

The International Crisis Group, an independent organization that assesses conflict areas, said in a report last year that the occupied region, nearly 12,000 square miles, holds "one of the world's most militarized societies" and risks sliding back to war.

But diplomats involved in recent negotiations say there is now a possibility of a settlement. They have been preparing for a meeting in France of President Ilham Aliyev of Azerbaijan and President Robert Kocharian of Armenia on Feb. 10 and 11, with hopes they will agree to a comprehensive plan.

The United States, France and Russia lead the so-called Minsk Group, a body of mediators working under the Organization for Security and Cooperation in Europe, under whose auspices the cease-fire was reached. Representatives of the three countries were scheduled to visit Baku, the Azerbaijani capital, on Wednesday, for more meetings with Mr. Aliyev. Similar meetings are planned with Mr. Kocharian in Yerevan, Armenia's capital, on Thursday.

No one as yet is predicting success, and Azerbaijan signaled reservations before the mediators' arrival. But several diplomats said there remained the potential for agreement.

"There has been a mass of very thoughtful negotiations that have brought us to this stage," said a senior State Department official who is familiar with negotiations. "We are now at the point where the presidents need to turn the corner from negotiations to decisions, and close the remaining gaps."

The official, like several others, spoke on condition of anonymity because both sides have sought to keep much of the contents of negotiations out of the public discourse.

Several people familiar with the talks, however, said a document summarizing the core issues had become the basis for proposing a two-stage process: first an agreement in principle, then a working out of the details.

One possible plan would involve a withdrawal of Armenian-backed military forces from much of the territory around Nagorno-Karabakh, accompanied by international security guarantees and an international peacekeeping force. At a later date, the diplomats say, a referendum could be held to determine Nagorno-Karabakh's political status.

The first step toward settlement, the diplomats said, would be for Mr. Aliyev and Mr. Kocharian to endorse a broadly defined plan based roughly on these proposals. If the presidents were to agree, delegations from both countries would work with mediators on details, including the timing and chronology for troop withdrawals. All involved said any referendum would be years away.

Keith Jinks, a spokesman for the Organization for Security and Cooperation in Europe, said the proposal also covered other issues, including the creation of a secure corridor in and out of the area, return of displaced civilians, reconstruction of infrastructure and clearance of land mines.

While talks have become more constructive in recent months, the diplomats said, the presidents still disagree on critical issues.

For Azerbaijan, a central issue is territorial integrity, and restoration of control over a region within its internationally recognized borders.

"We stand for the reintegration of the Nagorno-Karabakh region, while Armenia wants to disintegrate Nagorno-Karabakh from Azerbaijan," Araz Azimov, Azerbaijan's deputy foreign minister, said in a telephone interview. "Azerbaijan understands that all territory should be returned."

Armenia, which maintains that Nagorno-Karabakh is historically Armenian, contends that the region's fate and political affiliation should be determined by its inhabitants.

"That is the core issue — because of that the conflict erupted," Vartan Oskanian, Armenia's foreign minister, said by telephone from Yerevan.

Because so much complexity remains, diplomats familiar with the proposals also cautioned that even were Mr. Aliyev and Mr. Kocharian to reach an agreement, working through details would require at least several months, and might lead to a fresh impasse.

"Once we begin to work on a compromise document, I think new problems will continue to emerge," Mr. Oskanian said.

Still, diplomats say 2006 offers a window for negotiations.

There are no national elections in Armenia or Azerbaijan this year, allowing negotiators to work without the pressures of a campaign.

Azerbaijan is also expecting surging revenues from oil and gas pipelines scheduled to come on line late this year, and Mr. Aliyev is using new income to strengthen the military. This has raised concerns that Azerbaijan could be preparing for war — and raised hopes for a settlement before more militarization could occur.

The senior State Department official also said the mediators had tried to impress upon both sides that new fighting would be a catastrophe. "An attempt to bring about a military solution would not succeed, and it would have disastrous humanitarian and economic effects," the official said.

Mr. Azimov said renewed fighting was not in Azerbaijan's plans. "We are not interested in a war solution," he said. He added, "But war does not recognize any normal logic, and it happens when no one expects it and regardless of what people want."

Sabine Freizer, the author of the International Crisis Group's report, said the Azerbaijani position has hardened as the country has gained wealth and frustration has grown. "There is a level of belligerence that is just incredible, because they think that ultimately they can win," Ms. Freizer said.