The negotiations will include an important mediating role for the British and United States governments, which believe that the world must give a much higher priority to solving the Cyprus problem than it has done in the 22 years since Turkey's armed forces invaded and partitioned the island in 1974.
The talks will result in the first face-to-face meeting since 1994 between President Glafcos Clerides, representing the Greek Cypriots, and Rauf Denktash, the Turkish Cypriot leader. However, neither the Greek Cypriots, who run the internationally recognised government of Cyprus, nor their Turkish adversaries, who control a self-proclaimed state in the northern third of the island, are holding out great hopes for the talks.
Previous peace efforts, mainly under United Nations sponsorship, have aimed at rebuilding Cyprus as a "bizonal, bicommunal federation" in which the Greek and Turkish communities would enjoy civil rights and broad powers of self-government. However, the Turkish Cypriots - backed by Turkey, which maintains 30,000 troops in the north - have insisted for many years that their region, the so-called Turkish Republic of Northern Cyprus, should enjoy sovereign status.
Impatient Greek Cypriot officials say that, if next year's negotiations make no progress, they will transform the diplomatic picture by demanding that their part of Cyprus enter the European Union while the Turkish-ruled north is in effect kept out. According to this scenario, the north would not have access to the EU's single market, its aid programmes or other benefits until the Turkish Cypriots accepted the principle that Cyprus must be reunited as a single, decentralised state.
The EU is committed to starting membership talks with Cyprus six months after the end of the current Inter-Governmental Conference (IGC) on revising the Maastricht treaty. The IGC is likely to end in the middle of 1997, meaning that the EU and Cyprus should start the accession talks in early 1998.
The EU is reluctant to admit Cyprus as a member without a settlement of the island's fundamental constitutional and territorial problems. However, some EU officials say that, if Mr Denktash refuses to scale down his insistence on Turkish Cypriot sovereignty, then the EU may ultimately have no choice but to bring in the Greek-controlled south on its own.
The imminence of the EU membership talks has been a major factor behind the British and US drive to achieve a Cyprus settlement next year. The Foreign Secretary, Malcolm Rifkind, plans to go to Cyprus next month, the first such British visit for more than 30 years.
Britain's special representative for Cyprus, Sir David Hannay, has spent much time in Nicosia recently preparing the ground for direct negotiations. He describes the existing situation as "inherently unstable and incompatible with a solution".
Cyprus has gradually turned into one of the most highly militarised places in the world, with both sides building up forces in a reflection of wider rivalries between Greece and Turkey. Only yesterday, Greece's Defence Minister, Akis Tsohatzopoulos, was in Nicosia, promising Greek Cypriots that, under a 1993 pact, Greece would send fighter jets in response to any future Turkish offensive.
Tensions on the island rose last summer to a peak, when clashes broke out along the UN buffer zone dividing the two sectors. Three Greek Cypriots and one Turkish Cypriot have been killed since August.
Even if neither side is optimistic about the prospects for the talks, there is a sense that the involvement of the US could make a difference. Two weeks before his re-election, President Bill Clinton said he would feel a "personal humiliation" if the Cyprus problem remained unsolved during his second term.
The Clinton administration was about to launch a Cyprus initiative at the end of last year, and had earmarked Richard Holbrooke, the architect of the Dayton settlement for Bosnia, as the man for the job. However, the initiative was thwarted by fresh tensions between Greece and Turkey and by political deadlock in Ankara following Turkey's inconclusive general elections last December.
Mr Clinton's National Security Adviser, Anthony Lake, described the problem last month as "one of the world's top 10 outrages".