European Union leaders postponed hard decisions on a controversial climate change package and on a recovery plan for the bloc's struggling economy after a Thursday of tough talks in Brussels.

France, which is keen to cap its six-month stint as president of the EU with a historic deal, proposed a "final compromise" on ways of cutting greenhouse gas emissions shortly before midnight.

Its watered-down set of laws is designed to win unanimous backing amid strong resistance from Germany, Italy and many Eastern European nations.

But the final compromise toughened some aspects of the deal in a bid to woo more climate-conscious states, such as Britain and Sweden.

Meanwhile, Luxembourg Prime Minister Jean-Claude Juncker said he was confident that leaders would agree on a 200-billion-euro (265- billion-dollar) economic stimulus package on Friday, the final day of the summit.

"I expect that we will reach an agreement on the volumes proposed by the European Commission," Juncker, who also acts as the powerful chairman of the group of countries that share the euro, told Deutsche Presse-Agentur dpa.

A set of concessions designed to convince Ireland to hold a fresh referendum on the stalled Lisbon Treaty also ran into legal troubles, with Britain voicing the strongest concerns.

Ahead of the summit, officials had warned that the climate-change debate could spill over into all-night negotiations. But on the day, officials said that talks had gone more smoothly than expected.

"We are heading towards a deal (on climate change)," Italian Prime Minister Silvio Berlusconi, one of the package's strongest critics, told journalists during a break in the talks.

The EU has pledged to cut its greenhouse-gas emissions to 20 per cent below their 1990 levels by 2020 - a pledge which the current Brussels summit is intended to turn into law.

Concessions offered by France on the climate package include making it less expensive for European industries, and particularly for polluters from Eastern Europe, to meet the emission targets.

Delegation officials said that the compromise had received a cautious welcome. French diplomats drew up a second draft at the end of the day, ahead of a fresh round of talks on Friday.

On the Lisbon Treaty, EU leaders were understood to have agreed in principle to offer a series of concessions to Ireland, so that it may ratify a treaty designed to streamline decision-making in the 27- member bloc by the end of next year.

The most important concession involved allowing each member state to nominate a member of the European Commission beyond 2014.

Irish voters rejected the treaty in a referendum held in June, partly out of concerns that their country would lose the right to propose a "cabinet member" of the EU's executive.

A draft statement by the French government also included a declaration designed to address a number of additional concerns expressed by the Irish in their no vote, such as Ireland's policy of neutrality and its laws on tax and abortion.

"In the light of the above commitments by the European Council ... the Irish government is committed to seeking ratification of the Lisbon Treaty by the end of the term of the current commission," the draft EU statement read.

Dinner-time discussions turned to the European economy, which is facing recession and the prospect of stagnation in 2009.

Poul Nyrup Rasmussen, head of the socialist grouping of the European Parliament, has warned that 25 million Europeans could be unemployed in 2010 unless urgent action is taken.

The European Commission has asked member states to contribute to the package by mobilizing resources worth 1.5 per cent of the bloc's gross domestic product.

Germany has already announced measures worth up to 32 billion euros - more than any other EU country - but the bloc's biggest economy is under pressure to do more.

Speaking in Brussels, German Chancellor Angela Merkel said every country should do its share.

"For us, it is above all a question of securing jobs in Germany," Merkel said.

The summit also offered Merkel and British Prime Minister Gordon Brown a chance to clear the air after her finance minister, Peer Steinbrueck, ruffled many feathers in London by accusing the British government of seeking to "spend its way out of recession."

Britain is the only EU country to have introduced a temporary cut to its value-added tax (VAT) rate - a measure supported by the commission but opposed by Germany on the grounds that it will reduce public revenues while failing to boost consumption.

Meanwhile, Belgian police arrested 14 suspected members of al- Qaeda amid concerns that they may have been planning a terrorist attack against the summit. (dpa)