By Gabriela Baczynska and Padraic Halpin
LUXEMBOURG/DUBLIN (Reuters) - Britain and the EU made headway on Tuesday in last-ditch talks on a Brexit deal ahead of a leaders' summit, but with just hours left to clinch an agreement it was still unclear if London could avoid postponing its scheduled departure on Oct. 31.
Officials and diplomats involved in negotiations over the acrimonious divorce between the world's fifth-largest economy and its biggest trading bloc said that differences over the terms of the split had narrowed significantly.
However, the European Union's Brexit negotiator, Michel Barnier, made clear at a meeting of the bloc's ministers in Luxembourg that if an agreement couldn't be reached on Tuesday, it would be too late to send anything for leaders to approve at a summit in Brussels on Thursday and Friday.
That could force another extension of the date for the UK's split from the 27 other member states, the third since Britons voted in a June 2016 referendum to quit the EU.
Britain's plan to leave the EU, which has only ever added new member states, has compounded problems for a bloc torn by euroscepticism, economic disparities and an influx of migrants.
Britain has itself been polarized bitterly by Brexit and, even though an end-game appears to be in sight, the country is still intractably divided between leavers and remainers.
Technical talks in Brussels on the terms of Britain's exit went into the evening on Tuesday after word emerged several hours earlier that gaps on an agreement had narrowed and the two sides were close to agreeing on a text.
CLOSE, BUT NOT THERE YET
One EU official said an agreement was "close but not 100% certain", adding "there are still parts that need to be nailed down". Others were more cautious: one senior EU official said it was "way too premature" to conclude that a deal was at hand.
Sterling surged to its highest level against the dollar and the euro since May on rising hopes for a deal.The main sticking point in talks has been the border between EU member Ireland and the British province of Northern Ireland.
The question is how to prevent the border becoming a backdoor into the EU's single market without erecting controls which could undermine the 1998 peace agreement that ended decades of conflict in the province.
Irish Prime Minister Leo Varadkar told reporters in Dublin that talks had moved in the right direction.
"But whether we will be able to conclude a revised withdrawal agreement, which after all is an international treaty, in time for the summit on Thursday, that's as of now unclear," he said, adding that some hours earlier the gap had been "quite wide, particularly on the issue of customs."
The small Northern Irish party supporting Britain's minority government said further work was required to get a deal through.
Prime Minister Boris Johnson is likely to need the Democratic Unionist Party's (DUP) support if he is to get it through a vote in the British parliament.
"We respect (the) fact negotiations are ongoing therefore cannot give a detailed commentary but it would be fair to indicate gaps remain and further work is required," the DUP said in a statement.
If London is unable to clinch a deal, an acrimonious divorce could follow that would hit trade and business, roil financial markets and potentially lead to the United Kingdom splitting.
WINNING UK PARLIAMENT'S SUPPORT
Even if Johnson wins the approval of Europe's big powers for the deal his negotiators have proposed, he must still sell it to a British parliament in which he does not command a majority.
A leading figure in the 2016 referendum who came to power as head of ruling Conservative Party in July, Johnson has pledged to take the country out of the bloc on Oct. 31 whether or not a withdrawal agreement has been reached.
But parliament has passed a law saying Britain cannot leave without an agreement, and Johnson has not explained how he can get around that.
The main obstacle has been around customs, with London proposing that Northern Ireland stays in the UK customs area but that EU tariffs are applied on all goods crossing from mainland Britain to the island.
The EU had many doubts about that plan, saying it was too complicated, untested and not detailed enough.
It believes the only possible deal to be had at the summit is a return to a 'backstop' solution - already rejected by Britain - of keeping Northern Ireland in the EU customs area, a proposal toward which the UK had moved, media reports said.
A compromise of that order could be derailed in the UK parliament, where a rare Saturday session is due to be held this weekend.
Indeed, the DUP insisted that the region must remain within the United Kingdom customs union as part of any Brexit deal and not have to follow tariffs set by the European Union.
Deal or no deal for the summit, EU officials believe another delay to Britain's departure date is still likely. Extension options range from an extra month to half a year or longer.