Budget ministers and EU lawmakers paved the way for an agreement on Galileo's future on Friday by striking a deal on how to fund the project, removing a major obstacle.

They agreed to fill a 2.4-billion-euro (3.6-billion-dollar) hole in Galileo's financing entirely with money from the EU's 2007 and 2008 budgets.

Of that figure, two-thirds will come from unspent farm aid budgeted this year and the rest will be drawn from funds earmarked for research next year.

After months of bitter wrangling between member states, a senior official with the European Union's Portuguese presidency said "a big step forward had been made" with the funding agreement.

Work on Galileo, supposed to be a showcase for Europe's technical prowess, stalled earlier this year as cost over-runs piled up, the private contractors bickered and member states lobbied for their own industrial interests.

As the original public-private partnership involving a consortium of eight European companies fell apart, the European Commission recommended that the project should be relaunched using public money entirely.

In a sector as specialised and concentrated as the space industry, the same companies will be in the running for new contracts, although some smaller newcomers are also likely seek a share of the work.

The European Commission has divided the work into six segments consisting of the satellites, launchers, computer programmes, ground stations, control stations and the system's operation.

Companies will not be able to have more than two of the contracts and 40 percent of the work will have to be sub-contracted out to ensure that smaller companies also get to participate in the project.

Efforts to revive the Galileo project have stalled for months amid German demands for a "fair return" on investments granted to sites in Germany, which wanted the programme to be financed only by countries whose companies participated.

Although Germany was the only country to vote against Friday's agreement, paradoxically Berlin said afterwards it was satisfied with guarantees from the Commission on the participation of German companies.

In the current state of things, Germany will still play the lead role through Astrium, a unit of European aerospace group EADS, in the construction of the 26 satellites that are due to follow an initial four already planned in an initial phase.

Germany will also get one of the two control stations, with the other going to Italy.

However, one diplomat said that some countries wanted the satellite construction to be divided among two groups to ensure that other companies also get to participate.

Spain, which abstained from voting on Friday's agreement, is also demanding a control centre for such services as signals for ship safety and it remains to be seen if that will sow discord in Thursday's talks.

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