Nepal's Maoist rebels and the government, which began peace talks on Sunday, said the first round of talks were held in a cordial atmosphere.

The first talks in 17 months were held in a hotel in Kathmandu. They have raised hopes for peace after seven years of fighting to topple the constitutional monarchy and establish communist rule.

The rebels said both sides had decided to meet again, although no dates were finalised yet.

"We presented our agenda for a round table conference, an interim government and a constituent assembly," Krishna Bahadur Mahara, one of the rebel negotiators forming a five-member team, said after the talks ended.

The rebels, who model themselves on the lines of the late Chinese communist leader Mao Zedong, are seeking a meeting with major political parties to form an interim government that will oversee fresh elections and draft a new constitution.

Government negotiator Narayan Singh Pun, who is also planning minister, said the government would discuss the rebels' demands later.

Both Mahara and Pun said there were positive indications for the future round of talks to be successful.

"No hurdles are seen," Pun added.

Deputy Prime Minister Badri Prasad Mandal, who said last week that the talks could cover all subjects, heads the six-member government team.

It is not clear how long the latest discussions will last but the conflict, which began in 1996, has claimed more than 7,200 lives after peace talks failed in the past.

Analysts have said big differences remain between the two sides and lasting peace could be a long way off.

Peace talks collapsed in November 2001 and violence spiralled after the then government refused to abolish the monarchy, a hugely popular institution in the Hindu kingdom.