Talks on resurrecting the Northern Ireland assembly have entered an "important phase", Number 10 has admitted.

Downing Street said that a "serious engagement" between London, Dublin and Ulster's political parties was now underway in a bid to break the stalemate.

The latest crisis in the province began with the collapse of the assembly following allegations that Sinn Fein was involved in a spying ring.

The prime minister held a breakfast meeting last Thursday with Northern Ireland's church leaders who have considerable influence in the province.

It follows a series of meetings last week with political leaders including unionist David Trimble and Sinn Fein's Gerry Adams.Number 10 repeated Tony Blair's demand that arms decommissioning must be central to any deal.

But there was a note of caution - with the government, and particularly Northern Ireland secretary Paul Murphy, still pessimistic about the possibility of achieving a breakthrough.

"We are entering an important phase. We've been here so many times before in terms of optimism, confidence or pessimism. Everyone knows what's at stake," said the prime minister's official spokesman.

Ministers fear that any failure to agree a deal could jeopardise the possibility of holding the second round of assembly elections in May.