Insiders in the Peoples Democratic Party (PDP) and the Bharatiya Janata Party (BJP) say the alliance could take office before the end of February.
After saying for over a month that she won't head a PDP-BJP coalition unless New Delhi announces confidence building measures (CBMs), PDP chief Mehbooba Mufti seems to have decided to shake hands with the BJP.
BJP general secretary Ram Madhav, who is in charge of Jammu and Kashmir affairs, would reach the state next week for one-on-one talks with Mehbooba Mufti, BJP sources told IANS.
Madhav drafted the agenda of the alliance with PDP leader Haseeb Drabu last year that brought the late Mufti Mohammed Sayeed to power at the head of an alliance that gave power to the BJP, albeit as a junior partner, for the first time in the country's only Muslim-majority state.
With the PDP having its support base largely in the Muslim-majority Kashmir Valley and the BJP drawing support in the Hindu-dominated Jammu region, the two parties have different outlooks on some issues although they have shared interests too.
"The agenda of alliance cannot be revisited. That is something we have made clear. What Ram Madhavji will tell Mehboobaji is that the agenda cannot be revisited, but its implementation will be ensured in letter and spirit", a senior BJP leader told IANS.
The BJP, its leaders said, won't concede to talks with Kashmiri separatists, repeal of the Armed Forces Special Powers Act (AFSPA), wholly or partially, and would not ask the army to vacate land occupied by them as a precondition to Mehbooba Mufti's swearing in.
"The fact is the alliance is intact and we are going to form the government in Jammu and Kashmir shortly," a BJP leader told IANS on the condition of anonymity.
Mufti Mohammed Sayeed died in New Delhi on January 7, and the state was put under Governor's Rule two days later as it became clear that his daughter Mehbooba was in no hurry to take charge of the new government.
This in turn fuelled speculation that she may be planning to dump the BJP and embrace the Congress.
The BJP leader insisted that Mehbooba Mufti took her own time because she was in mourning.
Asked about her statement that she won't be able to form a government as she did not have "heavy shoulders" like her late father, the BJP leader said: "She has the right to ensure that she gets all the support from both the parties. Nobody should grudge her that.
"She wants concessions from the central government for Jammu, Kashmir Valley and Ladakh. That is what the agenda of the alliance is all about. Where is the confusion?" he asked.
A senior National Conference leader and former minister told IANS that his party never had doubts that Mehbooba Mufti would eventually sail with the BJP whatever she may say publicly. "That is going to happen."
The leader accused Mehbooba, a Lok Sabha MP, of causing confusion. "She said she can't move forward (with the alliance) and still did not break it. What does that mean?"
Some reports suggest that the central government may consider transferring an NHPC-owned hydropower project into the ownership of the state government to smoothen the ruffled PDP feathers.
If that happens and the talks with Ram Madhav end on a satisfactory note, Governor's Rule is likely to give way to an elected government in Jammu and Kashmir.