U.S. Sees Progress on Afghan Peace Pact : Diplomacy: ‘Narrowing the gap’ with Moscow on the conflict is reported in Washington.

The Bush Administration denied a report Wednesday that the United States and the Soviet Union have reached an agreement on settling the war in Afghanistan, but officials pointed to significant progress in resolving the conflict.

A television broadcast saying that a deal was completed is a “product of the rumor mill,” said Secretary of State James A. Baker III, who is traveling in Asia and will meet with Soviet Foreign Minister Eduard A. Shevardnadze in Irkutsk next week.

But Administration officials reported that the two sides are nearing an agreement to end the 10-year-old war, one of the last regional conflicts to divide the superpowers.

“We’re narrowing the gap,” one official said. “We’re not there yet.”

Administration officials in Washington confirmed that the framework of an agreement has emerged. The proposal under discussion calls for Soviet-backed Afghan President Najibullah to cede power to an interim government that would oversee national elections.

The United States and the Soviet Union have agreed that Najibullah would be allowed to run for office, but the two sides differ over what role he should play in an interim government.

“Najibullah is the sticking point,” an Administration official said.

The Soviets have insisted that Najibullah hold at least a ceremonial post during the transition, but the United States and the U.S.-backed Afghan resistance have balked. They express concern that if Najibullah keeps a foot in the interim government, he will retain control over the Afghan secret police and may be able to influence elections.

Both sides have agreed that the United Nations should play a major role in establishing an interim government and conducting elections, the official said. The elections may be conducted according to traditional Afghan customs, he said, using tribal councils or shuras .

“We don’t want to dictate what form the elections should take,” the Administration official said. The important thing is that “neither side would be able to intimidate or control this interim body.”

It is unclear whether the United States would continue to support the moujahedeen during the transition period, either with military or humanitarian aid.

Last year Congress appropriated $70 million in humanitarian aid for the Afghan resistance, but covert aid in fiscal 1990 is estimated at $280 million. Congress must decide before the end of September whether to appropriate new funds.

Supporters of the rebel resistance in Congress said that, although they welcome the prospect of a settlement that would remove Najibullah from power, they would like to see U.S. support continue.

“I think it is critical to maintain the support in full measure while the negotiations are going on,” said Sen. Gordon Humphrey (R-N.H.), one of the moujahedeen’s strongest backers. “The last thing you do is pull the rug out from under your allies.”

David Isby, a spokesman for the Committee for a Free Afghanistan, said that the moujahedeen “are of two minds” about the possible agreement.

“Everyone is terribly sick of the war and wants it to stop,” Isby said. “But there is a general fear that an agreement may be concluded without their participation.”

Isby added that although the Administration has consulted with the rebels about the terms of a possible settlement, the moujahedeen leaders still believe that the two sides are negotiating “over their heads.”

“Their voices have been heard, but they may not have been listened to,” Isby said.

Remaining issues may be resolved at the upcoming meeting between Baker and Shevardnadze.