"I am now prepared to make a working assumption that the cease-fire is intended to be permanent," he said in Belfast. "This means we can move carefully towards the beginning of dialogue between Sinn Fein and the government.
"Northern Ireland is at peace. Fear has been lifted from daily life."
In the speech to business leaders in the province, Major said that if the truce in the IRA's 25-year-old guerrilla campaign to end British rule in Northern Ireland continued to hold, British officials would convene exploratory talks with Sinn Fein before the end of the year.
Major also announced the opening of all border crossings with the republic of Ireland to the south, proposed to set up an assembly for "local democracy" and held open the possibility of talks with Protestant "loyalist" guerrillas, who want to keep the province as part of Britain, once they had also shown a permanent commitment to peace.
In another significant development Major, who arrived in Belfast early Friday for a surprise one-day visit, said he was lifting an order banning Sinn Fein leader Gerry Adams and his number two Martin McGuinness from entering mainland Britain.
Protestant guerrillas announced a truce on Oct. 14 in answer to an IRA cease-fire on September 1.
Major had said he would not contemplate talks with Sinn Fein until he was convinced the IRA had laid down its arms for good.
Under an Anglo-Irish peace plan last December, Sinn Fein were offered talks within three months of a permanent truce.
Major's announcement, termed a "big push forward" by his aides, was broadly welcomed by Sinn Fein.
British and Irish politicians said it was perhaps the most significant move by the London government toward peace in the province, where more than 3,000 people have died, in 25 years of murder, bombings and shootings.
"At last a move in the right direction by the British prime minister," said McGuinness.
"I broadly welcome what he has to say but it is quite clear that we must build on all of this ... We must also accept there has to be a fairly rapid demilitarization of the situation now."
Ireland's Deputy Prime Minister Dick Spring called the speech "very significant and very important." He particularly welcomed the opening of the borders, adding: "Hopefully we will see the fruits of today in our deliberations over the coming weeks."
Major will hold talks with Irish Prime Minister Albert Reynolds on Monday. Reynolds was quicker to accept that the IRA cease-fire was permanent and Irish officials have shown impatience at Britain's "softly, softly" approach.
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