Silvio Berlusconi, the Italian Prime Minister, appeared to have snatched victory from the jaws of defeat today as Alitalia's four big union confederations signed up at the eleventh hour to a rescue plan they had rejected a week ago.

The powerful left-wing CGIL union signed the deal during a meeting with Italian investors from the CAI consortium. CGIL was among the unions that refused last week to sign the plan, prompting the investors to withdraw their €1 billion offer on September 18. The CISL, UIL and IGL unions also signed today.

Unions representing pilots and flight attendants are meeting Gianni Letta, Mr Berlusconi's right hand man, who persuaded CAI to re-table its offer, at Palazzo Chigi, the Prime Minister's office. They have so far held out against job losses but the about face by Guglielmo Epifani, the CGIL leader, puts them under pressure to follow suit.

Mr Epifani told a press conference: "An absolutely positive comprehensive agreement was reached". He said he was satisifed with last-minute concessions by the consortium on pay, working conditions, holidays and temporary contracts. "This will give hope to hundreds and hundreds of workers who could otherwise expect nothing" he said.

Reports said that Air France-KLM was willing to take between a 10 and 20% stake in the new Alitalia if the deal was sealed. Mr Berlusconi staked his reputation on an "all- Italian" deal after dismissing an earlier Air France-KLM takeover in the spring during Italy's election campaign, when he took an overtly nationalist stand.

He is now likely to argue that his promise that Alitalia would remain in "Italian hands" has held good, with only a minority stake taken by a foreign airline. His standing in opinion polls is high, and he is credited by many Italians with having moved to flfill other election promises by tackling the rubbish crisis in Naples and cracking down on street crime in Italian cities.

Augusto Fantozzi, the government-appointed special commissioner who has been running Alitalia since it entered bankruptcy protection in August, said he had asked Italy's civil aviation authority not to carry out its threat to suspend Alitalia's licence, since there were sufficient funds to keep the airline flying until the end of the month, although flights might have to be reduced. He said the new Alitalia would take shape in mid October.

Luigi Angeletti, head of the UIL union, said the deal involved 3,250 job losses over three years, with the merged Alitalia and Air One, Italy's second largest airline, slimmed down to 12,500 employees. Maurizio Sacconi, the Labour Minister, said redundancy payments would be as generous as possible.

The strike-prone Italian airline, which has not made a profit since 1999, loses €2 million a day and has debts of more than €1 billion. It has been surviving on a loan of €300 million from the Government after the takeover talks with Air France-KLM collapsed. The European Commission is investigating whether the loan meets EU regulations and has ruled out further subsidies.

Antonio Divietri, head of the Avia union, representing flight attendants, said indications that Air France-KLM would support the rescue plan had "changed the situation". Mr Epifani also said he had also been reassured by reports that a "big international carrier" would take a stake in Alitalia if the CAI offer went through.

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