(Adds death of soldier, Fatah al-Islam pull out of stronghold)

By Nadim Ladki

BEIRUT, June 19 (Reuters) - Palestinian mediators are hopeful a deal will be reached soon to end a month of fighting between Lebanese troops and al Qaeda-inspired militants entrenched in a refugee camp, political sources said on Tuesday.

The Nahr al-Bared Palestinian refugee camp has been the battleground for Lebanon's worst internal violence since the 1975-1990 civil war. At least 163 people have been killed, including 74 soldiers, at least 57 militants and 32 civilians.

Previous mediation efforts to end the fighting, which has forced most of the camp's 40,000 refugees to flee, have failed. But a Palestinian political source said Palestinian mediators had met Shahin Shahin, a key member of Fatah al-Islam militant group, on Monday to discuss details of a truce.

The plan entails a ceasefire after which the militants would retreat to within the camp's official boundaries. Mainstream Palestinian factions would deploy a 150-strong force in Nahr al-Bared and Fatah al-Islam would announce its disbandment.

Islamic Jihad, one of the mainstream Palestinian groups, said results would emerge in hours.

"There is clear responsiveness from Fatah al-Islam," Islamic Jihad representative Abu Emad al-Refaie told al-Manar television. "I think what has been reached now opens important and positive horizons to end this crisis."

At Nahr al-Bared, Fatah al-Islam fighters pulled out of a stronghold on the outskirts of the camp, security sources said. The army had been battling to take the position and the withdrawal may be part of efforts to end the fighting.

A Lebanese soldier was killed and two more soldiers died from wounds sustained earlier, security sources said.

Witnesses said army shelling resumed early in the morning and later intensified on the camp's eastern side. Television footage showed smoke billowing from buildings pummelled by weeks of shell and gunfire.

Militants fired assault rifles and rocket propelled grenades and the army unleashed barrages of tank fire.

Security sources said soldiers discovered the bodies of seven militants in a building they were checking for boobytraps.

AL QAEDA CELL

The army says the militants triggered the conflict by attacking its positions near the camp and around the nearby city of Tripoli. Fatah al-Islam says it has acted in self defence.

The army has slowly advanced on the area controlled by the militants, without entering the camp's official boundaries. Security forces are barred from going into Lebanon's 12 Palestinian refugee camps by a 1969 Arab agreement.

The group emerged late last year after splitting from the pro-Syrian Palestinian faction Fatah al-Intifada (Uprising).

Lebanon's Western-backed government says Fatah al-Islam is linked to Syrian intelligence, a charge denied by Damascus.

Lebanon is struggling with a political crisis and there are fears the fighting could spread especially after a series of bombings in and around Beirut, the most significant of which killed an anti-Syrian Lebanese lawmaker last week.

Prosecutors on Monday charged 14 men with setting up an armed group, judicial sources said. The men, including a Saudi and two Syrians, were arrested this month in the Bar Elias village in the Bekaa Valley.

Security forces said at the time of the arrests they had dismantled an al Qaeda cell preparing car bomb attacks. (Additional reporting by Nazih Siddiq in Nahr al-Bared)

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