Property prices are soaring on the Greek side of the United Nations-patrolled "green line" that has divided the Greek and Turkish Cypriot communities for 28 years.

In Nicosia, the island's capital, owners have refurbished long-abandoned buildings amid rising expectations of a peace settlement ahead of Cyprus's prospective entry to the European Union on January 1 2004

"Rents used to be cheap close to the green line because of fears there might be incidents," says Giorgos, a car mechanic with a workshop overlooked by a Turkish Cypriot guard post. "Now the developers have this district in their sights."

For Glafcos Clerides and Rauf Denktash, the Greek and Turkish Cypriot leaders, land and property, security and demography will be the core issues at UN-sponsored peace talks due to resume this week.

Alvaro de Soto, the UN special negotiator, has set a deadline of February 28 for reaching a framework agreement that would enable a reunited Cyprus to sign an EU accession treaty on April 16, along with the other nine prospective member states.

But Mr de Soto will have his work cut out to make the elderly leaders focus on the talks. "They will be increasingly distracted over the next few weeks by domestic politics, as both try to hold on to power," says a Greek official. "Because we missed the chance of getting a deal at [the EU summit in] Copenhagen, the UN and the international community will have to put in a big effort to keep up momentum."

The cost of a delay could be high. The EU risks being saddled with the 40-year-old Cyprus problem and Greece's budding friendship with its old enemy Turkey would face a setback, raising the prospect of heightened tension in the east Mediterranean as the US tries to build support for a possible attack on Iraq.

Mr Denktash faces mounting popular pressure to drop his hardline position and participate actively in the talks. People in the impoverished republic of Northern Cyprus, recognised only by Turkey, have shown impatience for a settlement. Tens of thousands of Turkish Cypriots are expected to join a demonstration in Nicosia on Tuesday in support of EU membership - the second this month.

Ali Erel, head of the Turkish Cypriot chamber of commerce and a leader of the re-unification campaign, says: "If there isn't an agreement and the Greek side enters the EU on its own, this will cause the loss of Turkish Cypriots through emigration and Turkey will also suffer damage [to its own bid for EU membership]."

Underlining the accelerating pace of change in Turkey since Recep Tayyip Erdogan's AKP party came to power, the Turkish foreign ministry last week announced a change in policy on Cyprus. Turkey, it said, would not annex Northern Cyprus if the Greek Cypriots joined the EU - a threat frequently repeated under previous governments. Mr Erdogan has already warned Mr Denktash to take heed of the popular mood.

Meanwhile, a presidential election campaign in the south, launched amid fierce infighting among Greek Cypriot politicians, threatens the UN timetable. A plan to suspend the February 16 poll has fallen through because of objections by Akel, the powerful Cyprus communist party, which has been in opposition for the past decade. With three strong candidates, the election will almost certainly go to a run-off poll on February 23, leaving little space for a new government to close a deal.

Demetris Christofias, Akel's leader, dismisses Turkey's change of policy as political window-dressing. He says: "I don't think it's possible within the next few weeks to have a change in the positions of Turkey and the Turkish Cypriot leader that would allow constructive negotiations, the achievement of progress and a final solution."

Mr Clerides - the most popular Greek Cypriot politician - has decided to try for a third term, arguing that continuity is needed if the talks are to succeed. But he will be running against not only the communists' candidate but also the man who has been his closest ally: Alecos Markides, the Cypriot attorney general and chief legal expert at the UN talks.

Mr Markides's unexpected decision to stand as an independent candidate also puts in doubt his commitment to helping Mr Clerides meet the UN deadline. Though he made clear last week he would continue to take part in the negotiations during the election campaign, he said: "The road to a solution would not be a short one."

But there are signs of a change in mood among Greek Cypriots, who gave a cool response to the UN's draft peace plan when it was unveiled last November. The EU's decision at Copenhagen to admit Cyprus even without a settlement, together with revisions to the plan, are helping swing public opinion behind the plan.

According to the revised version, 90,000 Greek Cypriots would be able to return to their homes in the north - about half the number who fled in 1974 when Turkish troops invaded northern Cyprus in response to a coup aimed at union with Greece. The number of settlers from mainland Turkey permitted to remain in Cyprus would be reduced to around 50,000 from the 115,000 currently living in the north.

"There is only one way to get a workable settlement on Cyprus and that is to have broad popular support in both communities," says George Vassiliou, a former president.