- guardian.co.uk, Friday 8 February 2008 17.39 GMT
Raila Odinga in Nairobi. Photograph: Karel Prinsloo/AP
Annan, who is chairing the talks between the president, Mwai Kibaki, and the opposition leader, Raila Odinga, said a settlement could be reached by early next week.
"I sincerely hope we will complete our work by early next week," he said. "We are making progress.
"We are all agreed that a political settlement is needed, a political settlement is necessary, and we are now in the process of discussing the details, working out the terms of the settlement. So you will have to be a little patient."
Annan said negotiations between the government and main opposition party would break for the weekend and resume on Monday. He said both sides had agreed to call a meeting of parliament next week so that MPs could be briefed on the progress of the talks.
He said: "We had a very good session today. There is no doubt about it. And I think it gives grounds for optimism. But the issues are still on the table and we will go back to them on Monday."
His comments came after government and opposition party officials denied claims they had reached a power-sharing deal. But both sides said significant progress had been made in settling the dispute over December's general election.
"I don't think it's really going to be a breakthrough, but rather an agreement of principles," a senior government official told Reuters. William Ruto, of the opposition Orange Democratic Movement, said: "There is positive news, but no final solution yet."
Asked whether they had agreed to share power in a government of national unity, he said: "I don't think so. That is not the case." Ruto had said a joint government had been agreed, although the details had yet to be drawn up.
Proposals under discussion earlier this week were thought to involve Kibaki continuing as president with Odinga serving as prime minister.
Odinga yesterday retreated from calls for Kibaki to step down.
He said: "We are saying that we are willing to give and take. Initially our stand was that we won the elections, and Mr Kibaki lost the elections, he should resign, and we should be sworn in, but we have said that we are not static on that point."
Mutula Kilonzo, a member of the government negotiating team, said talks were making good progress. He agreed with Annan's assessment that talks could not afford to fail.
"We cannot afford our people using bows and arrows, people being pulled out of buses to be asked 'which language do you speak?' and then being chopped," Kilonzo said.
Riots and attacks have killed more than 1,000 people and displaced 300,000 since the disputed election on December 27. Both sides accused each other of rigging the vote, and the dispute laid bare deep divisions over land, wealth and power that date from British colonial rule.
This week the two sides signed a two-page agreement on measures including helping more than 300,000 displaced people return to their homes.
They also welcomed a UN human rights team to investigate the violence, and agreed on Annan's plan for a truth and reconciliation commission.
