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Euro zone leaders welcomed new budget proposals from Athens on Monday as a basis for further negotiations to unlock billions of euros in frozen aid and avert a default that could trigger a Greek exit from the single currency area.
Stock markets also cheered, with European shares extending the previous session's sharp rally and climbing to a three-week high on hopes of a deal. But the euro fell on fears the plan would struggle to win approval in Greek parliament.
Prime Minister Alexis Tsipras, who was voted into office in January on a pledge to roll back years of austerity in a country battered by recession, must keep his leftist Syriza party as well as his creditors onside for a deal to stick.
Outspoken Syriza lawmakers voiced outrage at Tsipras's offer to raise a range of taxes as well as pension and healthcare contributions, which threaten to further increase hardship on Greeks reeling from previous rounds of austerity.
"I believe that this programme as we see it ... is difficult to pass by us," deputy parliament speaker and Syriza lawmaker Alexis Mitropoulos told Greek Mega TV.
"The prime minister first has to inform our people on why we failed in the negotiation and ended up with this result," he said. "I believe (the measures) are not in line with the principles of the left. This social carnage ... they cannot accept it."
Officials of the three institutions representing Athens' creditors - the European Commission, the European Central Bank and the International Monetary Fund - were analysing the Greek proposals intensively in Brussels to see whether the numbers add up to make Greek public finances sustainable.
The creditors may well come back and demand further savings or reform measures in the drive to clinch a deal on Wednesday evening, people familiar with the talks said.
If parliament fails to back a deal, Tsipras might be forced to call a snap election or a referendum that would prolong the uncertainty.
Athens urgently needs money to avoid defaulting on a 1.6 billion euro loan repayment due to the IMF next Tuesday.
Jitters over the risk of a default leading to capital controls have prompted savers to pull billions of euros out of Greek banks, forcing the European Central Bank to increase emergency lending to keep them afloat.
With Greece perilously close to bankruptcy, it is unclear whether lawmakers, for all their bluster, would ultimately pull the rug from under Tsipras if he secures a deal.
"I believe the deal will pass parliament and will reconfirm the government's majority," Dimitris Papadimoulis, a Syriza lawmaker at the European Parliament, told Reuters.
"I do not believe that top Syriza lawmakers will want to be responsible for bringing down a five-month-old government and a prime minister who enjoys popular support of about 70 percent."
Opinion polls suggest most Greeks want to stay in the euro. Tsipras can also likely count on support from opposition lawmakers, who want to secure Greece's place in the euro, even though the government says it cannot continue unless its own lawmakers back any deal it brings to parliament.
"If (the government) does not have the parliamentary majority, it cannot remain (in power)," government spokesman Gabriel Sakellaridis said.
The ECB raised the ceiling on emergency liquidity Greek banks can draw from the country's central bank for the fourth time in a week on Tuesday, a banking source told Reuters, declining to say by how much.
Difficulties ahead
Although the mood after Monday's summit was broadly positive, there have been several false dawns in the talks.
Tsipras appeared to have reached an understanding with the creditors at the start of June, only to blast their demands as "absurd" in parliament after running into a backlash at home.
In its proposal, Greece pledged to lift the retirement age gradually to 67 and curb early retirement, but avoiding making concessions on some so-called "red lines" like direct pension cuts or a mooted tax hike on electricity.
Ahead of emergency talks in Brussels, he had spent hours with his cabinet in an apparent attempt to secure ministers' backing. But Tsipras returned home to accusations from some quarters of having caved in.
"The government has fallen into a trap, I don't know to what extent this can be implemented," said Pavlos Haikalis, a deputy with Syriza's junior coalition partner, the Independent Greeks.
The exact contours of a final agreement are not clear. Eurogroup finance ministers are expected to meet to approve a reform package on Wednesday evening and put it to euro zone leaders for final endorsement on Thursday morning.
But German Chancellor Angela Merkel, who is under pressure from within her own ranks not to appear soft on Greece, has been more cautious, saying there were no guarantees that a final agreement could be reached.
Greek newspapers on Tuesday saw a deal in sight but warned that the creditors could ask for tougher measures.
"The deal is not only visible but there are sound expectations that it will be concluded in the next days," Greek daily Ethnos said. "While this dissipates reasonable fears of catastrophic consequences in the event of a failure in the negotiations, the difficulties are ahead of us."
