The U.S. Justice Department and the city's school system have reached a tentative agreement to release the district from a 26-year-old desegregation case as early as next year.

Under the settlement filed in federal court Monday, the district would be allowed to set its own plan and budget for integrating schools starting with the 2007-2008 school year.

Schools chief Arne Duncan has called the agreement "a huge victory for the schoolchildren of Chicago."

In 1980, the federal government ordered the city to desegregate its public schools, requiring it to provide additional educational services for children in racially isolated schools and to integrate to "the extent practicable."

School officials have argued that integrating the entire system is increasingly difficult, given the low percentage of white students. Nearly half of the district's students are black and 38 percent are Hispanic.

The new agreement would replace a March 2004 deal that officials had intended to end federal oversight but that ultimately led to more legal battles.

Patrick Rocks, chief legal counsel for the school system, said that agreement "just proved to be unworkable."

The new agreement still needs to be approved by U.S. District Judge Charles Kocoras, who in the past has called the federal oversight outdated.

Chicago is the nation's third-largest school district with 431,000 students.