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Britain's two main opposition parties, the centre-right Conservatives and the centre-left Liberal Democrats, are in talks on a possible government deal after an inconclusive election last week.The Conservatives ended up as the largest party in parliament but without an overall majority -- the first time no party has won more than 50 percent of the seats in parliament in almost three decades.Below are some areas of possible agreement between the parties, and ways of governing.* POSSIBLE GOVERNMENT AGREEMENTSMINORITY GOVERNMENT - "CONFIDENCE AND SUPPLY"Conservative leader David Cameron said it was possible to rule as a minority government, getting ad hoc agreements with other parties on a law-by-law basis.This is known as a "confidence and supply" approach and is potentially risky since it means the government can effectively be held to ransom over every piece of legislation it wants to pass, and has to enter long and complex negotiations each time.Such an approach could be harder for the Conservatives than for the ruling Labour party, since the majority of the smaller, mainly nationalist, parties to whom they would look for support are aligned with the political left.Cameron said on Friday: "I am prepared to consider alternative options. It may be possible to have stronger, more stable, more collaborative government than that."MINORITY GOVERNMENT - CONSERVATIVE/LIB DEM PACTA more stable form of government might be a pact between the Conservatives and Liberal Democrats that would involve the Lib Dems agreeing to support a legislative programme implemented by the Conservatives.In 1977 the minority Labour government agreed such a deal with the Liberal Party, known as the Lib-Lab pact, in which a ruling Labour minority government agreed to consider a number of Liberal policy proposals. In return the Liberals agreed to support Labour in any no-confidence motions.That pact lasted just over a year.FORMAL CONSERVATIVE/LIBERAL DEMOCRAT COALITIONCameron said he wanted to make "a big, open and comprehensive offer to the Liberal Democrats". This could, theoretically, include a coalition, but that raises questions about what positions any Lib Dems would take in cabinet -- or indeed whether they would accept any ministerial positions.The Liberal Democrats may find such a formal working agreement difficult to accept.There were suggestions at the weekend that the Conservatives may have offered the Lib Dems three cabinet positions or that the Lib Dems had demanded six cabinet posts including Foreign Affairs, but this has not been confirmed.A formal working coalition makes it more difficult to oppose policy openly and could weaken the smaller partner.* POSSIBLE AREAS OF AGREEMENT/CONFLICT"It is right and reasonable to acknowledge that of course there are policy disagreements between us ... but across our two manifestos there are many areas of common ground," Cameron said on Friday.At the same time, Cameron has drawn clear lines in the sand for negotiations with the Liberal Democrats on core Conservative areas.1. EUROPE/DEFENCE/IMMIGRATIONThe Conservative leader does not support giving any more powers to the European Union while the Liberal Democrats are pro-European. Although the Lib Dems have not suggested ceding more power to the EU, they have previously said they could support joining the euro if the time was right.The Conservatives have also portrayed the Lib Dems as "soft" on immigration for proposing an amnesty for illegal immigrants who have been in the country for more than a decade. The Conservatives want to cap immigration.This may not be such a gulf as it appears, since most immigration comes in any case from the European Union, which cannot be capped. The Conservative Mayor of London, Boris Johnson, has also proposed some kind of amnesty.Cameron said "the country's defences must be kept strong" - an implicit rejection of the Liberal Democrat plan not to replace the ageing Trident nuclear missile system on a like-for-like basis.2. DEFICIT/TAXTackling the massive budget deficit could be a source of tension in any discussions although both parties said on Sunday that economic stability and deficit reduction would be at the heart of any agreement.The Conservatives want to cut harder, faster than the other parties. The Liberal Democrats have said that cutting it this year could put a fragile economic recovery at risk."No government will be in the national interest unless it deals with the biggest threat to our national interest, and that is the deficit. We remain completely convinced that starting to deal with the deficit this year is essential," Cameron said.He noted that both parties agreed that National Insurance -- a payroll levy -- was a damaging "tax on jobs"."It has always been an aspiration for the Conservative party to reduce taxes, especially on those who earned the least, and we are happy to give this aim a much higher priority," he said.3. ELECTORAL REFORMThis could prove a sticking point. Cameron said there was agreement that electoral reform was necessary. However, the Conservatives have previously only proposed a reduction in the number of MPs in the lower House of Commons.The Lib Dems want a comprehensive reform that includes a shift to a proportional representation system from the current first-past-the-post method, which counts only individual constituency results, not overall share of the vote.Opinion polls at the weekend showed that a majority of voters support a change to a more proportional voting system.Cameron has said before that he does not support changing the current system. On Friday, he suggested that an all-party committee look at proposals for electoral reform.Liberal Democrat leader Nick Clegg may push for a referendum on electoral reform -- as the ruling Labour party have pledged -- as the minimum for any deal. This could help assuage doubts among party activists about a pact with the Conservatives.4. EDUCATION/CIVIL LIBERTIES/ENVIRONMENT"We share a strong desire to make opportunity more equal in this country," Cameron said on Friday. He said he recognised the importance the Lib Dems had attached to a so-called "pupil premium" that would help to make education provision fairer.The Liberal Democrats have said that driving Britain towards becoming a low carbon economy is a priority, and Cameron said he supported this aim.He said both parties agreed that a highly expensive and widely criticised Labour plan to introduce ID cards across the country should be scrapped.- To see the latest stories about the UK, click http://link.reuters.com/quq44j for multimedia coverage- See us online http://uk.reuters.com/news/globalcoverage/politics- Follow us on Twitter https://twitter.com/reuters_co_uk
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