The Irish prime minister said his administration was still considering the report given to it by John Hume, the SDLP leader, on his series of talks with Gerry Adams, president of Sinn Fein.
Mr Reynolds, who has so far been guarded in his reaction to the initiative, said: 'The talks process between the leaders of the SDLP and Sinn Fein has helped to provide elements that could, when further developed, supply an important part of the basis for peace.'
He emphasised that the Irish and British governments were ultimately responsible for providing a framework for peace. He was addressing the annual commemoration ceremony for Wolfe Tone, the Irish nationalist leader, at Bodenstown, Co Kildare, an occasion which has often been used to make seminal nationalist speeches.
The Taoiseach laid down guidelines which might be of central importance if the Hume-Adams process develops. He said that however strong the distaste at terrible deeds, they had to accept parties with an electoral mandate into the democratic process once a definitive renunciation of violence had been unequivocally established.
He added: 'The principle that negotiations on a political settlement can only take place between democratic governments and parties committed exclusively to constitutional methods will be upheld.' He said they would always believe that a united Ireland established by agreement and consent would in the long run provide the best and most lasting solution. But accommodation could only be on the basis of freely given agreement and consent.
He went on: 'We have now reached a critical moment where perhaps the fate of this country, our futures and our children's future stands to be decided. It requires a genuine effort on everyone's part to recognise the validity of both traditions. Except at the extremes and provided an absolutist approach is avoided, there need be no fundamental incompatibility between these two positions.'
In a reference to demands that his government should put Articles 2 and 3 of the Irish constitution on the table, Mr Reynolds said they were prepared, as part of a new overall agreement, to undertake balanced constitutional change.
The terms of the progress made by Mr Hume and Mr Adams in their talks remain secret and so far as is known the British government has yet to be informed of what has been agreed.
Mr Hume said in a BBC interview that they had not 'forwarded proposals for a solution in terms of institutions or anything like that. All that speculation is nonsense. What we are talking about are the broad principles which ought to govern any approach to a solution: who should be involved - both governments and all parties. What's the objective - agreement among the divided people that earns the allegiance of everybody.'
Mr Adams said the British government had been 'arrogantly dismissive' of the initiative, adding: 'They need to apply themselves to the reality that there is a potential for peace out of this initiative.'