Rival Cypriot leaders on Friday set 3 September as the date when they will begin direct negotiations on ending the island's 34-year-old division.
During a two-hour meeting, President Demetris Christofias, a Greek Cypriot, and Turkish Cypriot leader Mehmet Ali Talat also decided that the results hammered out between them will be put to referendums in their two communities.
Friday's meeting covered a review of progress made by technical committees set up at earlier talks in March.
"Having made their final review, the leaders decided to start their fully fledged negotiations on September 3, 2008 under the good offices mission of the UN secretary general," said UN Chief of Mission in Cyprus, Taye-Brook Zerihoun, reading a joint statement from the two leaders.
"The aim of fully fledged negotiations is to find a mutually acceptable solution to the Cyprus problem, which will safeguard the fundamental and legitimate rights and interests of Greek Cypriots and Turkish Cypriots," he said.
"The agreed solution will be put to separate and simultaneous referenda," Zerihoun added.
A similar vote, on a peace plan drawn up by the United Nations former secretary general Kofi Annan in 2004, drew a resounding "yes" from the north but was strongly rejected by the south, leading to paralysis in peace efforts.
But in February, Christofias was elected president on a platform of reviving reunification talks which went nowhere under his hardline predecessor Tassos Papadopoulos.
Since then, a flurry of diplomatic moves plus the opening of a crossing in Ledra Street linking south and north in the symbolic heart of Nicosia have seen fresh optimism over efforts to solve the problem.
Speaking to reporters later, Christofias said of the meeting: "I consider that we have taken another step forward."
He added: "From here on in we shall see, there is a lot we are agreed upon and a lot where there is no agreement."
He added that both sides needed to take a "productive stance, by sticking to the basic principles, and with goodwill we shall reach a solution."
Among steps agreed at technical committee level, the leaders approved 16 measures covering areas such as the environment, cultural heritage, crisis management, crime and criminal matters including exchanging information and intelligence, the joint statement said.
UN chief Ban Ki-moon hailed the decision and pledged his full support for their efforts, a message that was echoed by the European Commission.
Ban in a statement commended "the (Cypriot) leaders for the progress made so far and takes this occasion to reiterate the full support of the United Nations for their efforts toward a mutually acceptable solution."
The European Commission, meanwhile, said it considers the decision "an important step towards finding a mutually acceptable solution to allow the reunification of Cyprus".
The announcement was also hailed by the United States and Britain.
The lack of a Cyprus settlement is viewed as a major stumbling block to Turkey's European Union ambitions.
The best chance for peace
Friday's statement by Christofias, president of the internationally recognised government, and Turkish Cypriot leader Talat, said: "As a reflection of the heightened engagement, the leaders have agreed to establish a secure hotline to facilitate direct contact between them."
Speaking on Thursday, Talat said he wanted intensive negotiations.
"Our objective is to reach a settlement in a short time... I believe we can make it by the end of 2008," he told Turkey's Anatolia news agency.
An agreement between Christofias and Talat, both regarded by the international community as "pro-settlement," is seen as the best chance for peace since the failed UN reunification blueprint in April 2004.
Cyprus has been divided since 1974 when Turkish troops occupied its northern third in response to an Athens-engineered Greek Cypriot coup seeking enosis, or union, with Greece.
Thousands of Greek Cypriots living in the north fled south and Turkish Cypriots fled north, with both communities abandoning property.
Displaced Greek Cypriots outnumbered Turkish Cypriots by about four to one roughly the same proportion as the 1974 population.
The Turkish Cypriots nationalised Greek Cypriot land and property and most of it was distributed to Turkish Cypriots displaced from the south and to settlers from Turkey.