The Philippine government announced a cease-fire deal with a Muslim rebel group Friday, agreeing to drop arrest warrants against rebel leaders for alleged terrorism to pave the way for peace talks as early as next week.

The deal was reached with the Moro Islamic Liberation Front (search), which has been fighting for an independent Muslim territory in Mindanao and other islands of the southern Philippines for about three decades and has been blamed for deadly bombings and other terrorist activities.

"Today the peace panels of our government and the MILF have agreed on a mutual cessation of hostilities," President Gloria Macapagal Arroyo (search) said in a statement.

"I call on the panels to immediately enter in formal talks towards a final peace agreement," she said.

Foreign Affairs Secretary Blas Ople said earlier that negotiations with the rebels could reopen in Malaysia next week.

The way for resumed talks was opened last month when an MILF leader formally denounced terrorism, a top government demand. Arroyo had accused the rebels of ties with the regional militant Islamic network Jemaah Islamiyah (search), said to be linked to Al Qaeda.

The Philippine military launched an offensive against the 12,000-strong rebel movement earlier this year amid an escalation in rebel attacks and bombings, and sporadic peace talks fell apart.

Aware that past talks have failed, Arroyo sounded an optimistic tone with the new cease-fire.

"I ask our people to give peace a chance," she said. "As we address the roots of rebellion and secession, I am confident that we shall also effectively isolate and marginalize the dwindling terrorist cells in Mindanao and across our seas in the region.

"Peace is at hand. We shall forge the political will to preserve it for all generations of Filipinos."

The government gave in to a key rebel demand that arrest warrants be dropped against rebel leaders for alleged involvement in a recent series of deadly bombings in the long-troubled south. The government wanted the group to petition the court for the suspensions, but the rebels don't recognize the Philippine constitution or justice system.

"The warrants of arrest against the members and staff of the MILF panel have been suspended by the court," Arroyo said. "Safe conduct passes will be issued so that they can travel to the venue of negotiations."

Arroyo thanked Malaysia, which has helped arrange the talks, and the United States in advancing the peace process.

The government had talked about abandoning talks after a bomb killed three and wounded 26 others earlier this month in the south. But Arroyo also has said the bombing won't deter the government from preparing for negotiations with rebels unless the group is proven to be involved.

Ople said he expects the United States, through the Washington-based Institute for Peace, to support Malaysia in facilitating the talks. He said the U.S. Congress has allocated $30 million for financial and diplomatic support to the peace process.