A Brexit breakthrough is on the cards after Prime Minister Boris Johnson and Taoiseach Leo Varadkar negotiated what is being described as a "pared down" free trade agreement.
The potential deal, which has not received EU approval, could remove the need for significant customs checks on the island of Ireland.
Instead, the heavier checks would be moved to ports and airports, effectively creating a border in the Irish Sea.
The move was discussed during a three-hour meeting after which the two leaders said they could "see a pathway to a deal".
Mr Varadkar tossed aside the long-standing position that the Republic would not negotiate directly with the UK on Brexit.
Much of the meeting at a wedding venue in Cheshire was one-on-one before the Taoiseach and Mr Johnson were joined by officials.
The Prime Minister drafted in senior officials from the Revenue and Customs service late on in the talks at Thornton Manor.
The Irish side was providing updates to the EU taskforce in Brussels as the day wore on.
Both sides agreed not to reveal the detail of their talks publicly until it has been assessed by the EU's chief negotiator Michel Barnier and his team.
However, amid renewed hope that a deal can be secured in time for a UK exit on October 31, Tanaiste Simon Coveney warned: "Mark my words - we are not there yet."
A DUP source said that Mr Varadkar had "over-egged" the outcome of the meeting.
The Taoiseach "can't be getting what he wants on customs as Boris loses his majority for a deal the second that he does", the source said.
Mr Johnson's original offer last week would have seen Northern Ireland remain aligned to EU regulatory rules but outside the customs union.
This was rejected by the Irish government on the grounds that it would require tariffs and, in turn, checks on goods crossing between Northern Ireland and the Republic.
The latest development could see the UK agree to a special treaty which sources described as "a semi-free trade agreement".
It could involve Northern Ireland formally leaving the customs union but agreeing to follow its rules for a period.
The arrangement would have to be given some form of consent by people here.
Speaking in Liverpool after his meeting, Mr Varadkar was giving little away but said he believes it is possible "to have a treaty agreed to allow the UK to leave the EU in an orderly fashion and to have that done by the end of October".
"But there's many a slip between cup and lip and lots of things that are not in my control," he cautioned.
When asked about who made concessions to break the impasse, the Taoiseach said: "I don't think this should be seen in the context of who's making concessions, or who the winners and losers are. I don't think that's the game any of us want to play."
On foot of the optimism, the pound made its biggest jump against the dollar in almost a year as investors seized on hopes of last-ditch progress.
Fianna Fail leader Micheal Martin said he was "pleased that the megaphone diplomacy has been replaced by proper and serious Brexit discussion today".
"The signals coming from Liverpool are encouraging and we hope that positive momentum can be sustained over coming week," he added.
However, one European Commission source close to the Brexit process played down the positivity emerging from the Merseyside summit, saying early indications were that it "seems to be based on mood music rather than meat".
EU Brexit negotiator Michel Barnier will make a decision today on whether to restart formal talks with the UK's Brexit negotiating team following a meeting with Brexit Secretary Steve Barclay.
Aside from a joint statement with the Taoiseach, Mr Johnson made no public comment.
However, Michael Gove, the minister in charge of preparations for Brexit, said: "The conversations between the Prime Minister and Leo Varadkar, they were cordial, they were constructive, they were open and they say there's going to be progress, so I'm delighted."
The unexpectedly upbeat statement comes at the end of a week marked by acrimonious exchanges between London, Dublin and Brussels in which the negotiations appeared close to collapse.
With time short, Government sources have said ministers are preparing to hold an emergency Saturday sitting of Parliament on October 19.