Mr Arafat was speaking at a joint press conference with Shimon Peres, the Israeli Foreign Minister, in Davos, Switzerland, where, after lengthy meetings, the two men held hands and heaped praise upon each other, clearly striving to re-ignite the earlier peace euphoria, after weeks of gloom.
'We are on the way to by-passing the obstacles,' said Mr Arafat. Mr Peres thanked Mr Arafat 'for his supreme effort to bring our two peoples together in the domain of peace and hope'.
In the desert Red Sea resort of Taba attempts to implement the peace agreement have recently faltered. Now, inspired by the snowy mountain scenery of Davos, Mr Peres spoke of Israel and the PLO climbing 'a magic mountain of peace'.
Despite their optimistic words neither man last night presented any details of the draft agreement, and some Israeli officials were urging caution until the terms had been finally signed, sealed and delivered. It is likely that, while outline terms have been agreed, final approval is awaited from Yitzhak Rabin, the Israeli Prime Minister. There was no reaction from Jerusalem last night.
Mr Rabin is expected to state his position at an emergency cabinet meeting today called to discuss the resignation threat from Haim Ramon, the Health Minister and a leading dove, following a dispute over Israeli trade union reforms.
The messages from the PLO side last night, however, were markedly upbeat, suggesting that they, at least, were happy with the new proposals. Yasser Abed Rabbo, a PLO spokesman, said there was now a compromise on the table and 'we accept it'. He added: 'I can't say that there is any problem holding up the agreement.'
Mr Arafat strongly hinted that the ground was now prepared for another meeting between him and Mr Rabin, probably in Cairo. It is widely expected that a further Israeli-PLO summit would have to precede the final implementation.
In Davos the two sides have been attempting to draft a specific agreement setting out precisely how Israeli withdrawal from Gaza and Jericho will be carried out, and how Israel will begin the transfer of powers, as set out in principle in the September Declaration of Principles. Withdrawal was due to have begun on 13 December, according to the timetable of the declaration, but disputes over security issues and control of border crossings prevented it.
Both sides have attempted to brush off the delay in implementation, stressing that the September deal was only an outline and that negotiations would take some time. However, in recent weeks confidence in the ability of the two sides to come together has waned, and some officials have predicted that time was running out. The pressure for a breakthrough at Davos has therefore been intense.
The most contentious issue has been who should have the final say over people entering the newly autonomous areas. Israel has insisted all along that it should have a veto over who crosses the Allenby Bridge into the Jericho zone and the Raffah crossing point into Gaza. The compromise agreed at Davos is likely to involve an Israeli offer to accept a Palestinian presence at the crossings, but to maintain an electronic monitoring safeguard.
Agreement was also being sought in Davos on the size of the Jericho area. Israel has proposed limiting the size of the zone to the municipal boundaries, but has shown some willingness to compromise. The Palestinians have insisted on an area stretching from norther Israel to the tip of the Dead Sea.
The Egyptian Foreign Minister, Amr Moussa, has played an increasingly prominent role in the negotiations and was in Davos. Egypt, the only country to have signed a peace agreement with Israel, is keen to promote its role as mediator in the Middle East peace process.