The conservative Fine Gael party, which captured the most seats in the Feb 25 election, forged an agreement with the leftist Labor party on a government, setting parliament up to name Fine Gael leader Enda Kenny as prime minister when it convenes Wednesday.
The two parties came to terms after agreeing to an ambitious plan to address the nation's deficit. The two sides want to negotiate the interest on $119 billion loan from the European Union in November.
Fine Gael captured 76 of the 166 seats in parliament, while Labour won 37 seats in the election nine days ago. The dominant and long-ruling Fianna Fail suffered a major defeat, seeing its vote reduced more than half from the May 2007 election.
The agreement marks the first time since 1997 that Fine Gael and Labour have controlled the government in Ireland.