KATHMANDU - King Gyanendra announced today he would reinstate Nepal's dissolved parliament, prompting political parties to say they might call off the mass protests that have paralysed the country.
The parties had vowed to stage a major rally led by two former prime ministers on Tuesday, which had been expected to attract hundreds of thousands of people.
"We, through this proclamation, reinstate the house of representatives which was dissolved on May 22, 2002," the king said on national television, adding the first session would be held on Friday.
"We call upon the seven-party alliance to bear the responsibility of taking the nation on the path to national unity and prosperity, while ensuring permanent peace and safeguarding multi-party democracy."
Last week, the king offered to hand over power to a prime minister nominated by the seven political parties, but the parties said this was not enough.
His brief statement made no explicit mention of elections to an assembly that would write a new constitution, which has been another key demand of the protesters and of Maoist rebels who control large swathes of the countryside.
But the king said his proclamation was being made "according to the road map of the agitating political parties".
Arjun Narsingh K.C., a senior leader of the Nepali Congress, the largest political party, said the alliance would respond formally on Tuesday but was likely to postpone a major rally planned for the capital on that day.
"It is the victory of the people's movement," he said.
The king, looking sombre and wearing a traditional Nepali cap and black jacket, also offered his sympathy for the first time to the victims of 19 days of street protests.
"We extend our heartfelt condolences to all those who have lost their lives in the people's movement, and wish the injured a speedy recovery," he said.
There was no immediate word from the Maoist rebels, who entered a loose alliance with the parties last year to end royal rule. But analysts said the parliament was likely to start a peace process with the Maoists that would lead to elections for the constituent assembly.
Diplomats had been trying tried to broker a compromise between the king and political parties.
Earlier on Monday, thousands of people demonstrated in Kathmandu, largely peacefully, along the 27km ring road that circles the capital, kept out of the city by rows of padded and helmeted riot police wielding sticks and shields.
The parties have reasserted their control over the protests in the last two days, leading largely peaceful demonstrations after two weeks of confrontations with security forces.
There were only isolated clashes on Monday, with at least a dozen people injured, after police fired rubber bullets and teargas on stone-throwing crowds and beat protesters.
Earlier the US embassy ordered non-essential staff and family members to leave the country. It also recommended American citizens should consider leaving Nepal.
A US State Department official gave the proclamation a guarded welcome, saying Washington wanted the king to give up the power to be able to dissolve parliament again.
"What's important is not only that power be restored and handed over to political parties but that some commitments be made that would prevent a repeat of the events of 2005," the official told reporters.
Maoist rebels waging a decade-long insurgency against the monarchy flexed their muscles by staging a raid on a district capital just a few hours drive from Kathmandu.
Hundreds stormed the town of Chautara, 100 km east of the capital, and fought a six-hour gun battle that left at least five rebels and a soldier dead.
The parties have been agitating since April 6 to force Gyanendra to restore multi-party democracy. At least 12 people have been killed and thousands wounded in protests since then.