The opposition Movement for Democratic Change (MDC), led by Tsvangirai, and a breakaway MDC faction, led by Arthur Mutambara, have been engaged in talks with Mugabe’s ruling ZANU-PF party since 21 July to end a political stalemate following the one-man presidential ballot in June, which was widely condemned as undemocratic.
South African President Thabo Mbeki, appointed by the Southern African Development Community as negotiator between the parties, announced in the Zimbabwean capital, Harare: "we have concluded the negotiations that the parties have been engaged in." He said the agreement, which he described as "unanimous", would formally be signed on Monday 15 September and the details of the power-sharing pact made public.
"I am excited, and I have seen hundreds of other people openly show their own excitement too, since news of the deal started filtering in," a Harare-based university lecturer in business studies, who declined to be identified, told IRIN.
"Talk in the streets, in public transport and in pubs has been about the political settlement, and people generally agreed that the sooner a meaningful deal was signed, the better for Zimbabweans, who have endured so many economic and political hardships in the past eight years," he said.
"Zimbabwean politics will never be the same again, and it will not be ‘business as usual’ for ZANU-PF, which is blamed with bringing woes on the people," he said. Although the lecturer conceded that an economic turnaround would not happen immediately, "it is definitely coming, and with the taste of candy."
"The most important thing is that investor confidence will be restored. There are so many outside investors that have been waiting for a breakthrough in the talks and are waiting anxiously in the wings. Local industry had also adopted a wait-and-see attitude, and now things are starting to shape up, production will resume, shops will be restocked and prices will go down," he said.
He was optimistic that the three parties expected to form a transitional and inclusive government would set side their differences and convince the international community to revive economic support for the country.
But while the hope for change is palpable, Western diplomats in Harare were far more cautious over the deal struck.
"As long as Mugabe is in the equation, especially as head of state, then our position on not providing aid to Zimbabwe will not change. Our sources in government tell us that Tsvangirai is being brought in to legitimise the Mugabe regime which has destroyed what used to be a thriving economy," a European envoy told IRIN.
A senior official with a western donor organisation said aid would only be resumed if Mugabe, whom they accuse of human rights violations, was removed.
"The view generally is that Mugabe is in power after unleashing violence on the population after having lost the first round of elections. The first round of voting in which Tsvangirai defeated Mugabe is what most of us regard as the people’s true feelings which should be respected if not then there is little likelihood of aid flowing into Zimbabwe."
Since 2000 Zimbabwe’s economy has rapidly declined; one of the region’s strongest economies has shrunk by about two-thirds, with official inflation estimated at more than 11 million percent, unemployment at more than 80 percent, and shortages of food, fuel and electricity commonplace.
The UN predicts that by early next year 5.1 million people, out of a population of about 12 million, will require food assistance. More than three million citizens are thought to have left Zimbabwe in recent years in search of employment.
Pillian Sithole, 32, a Zimbabwean psychologist who arrived in Britain in 2003 and has survived by doing menial work although he has two degrees, is considering returning to his home country.
"It is too early for us who are living in the diaspora to say the situation is safe and conducive for us to return because we are not sure how the new political dispensation will deliver, but I am convinced that however the situation will unfold, it can only be for the better," he told IRIN.
"The fact that Mugabe will be working with Tsvangirai means that there will be checks and balances, and one thing for sure is that those in ZANU-PF who have brought the economy to its knees were also getting tired of the malaise they have caused; they desperately want the IMF [International Monetary Fund] and the World Bank to resume support," he said in an email.
Even if Tsvangirai was not granted the full executive prime minister’s powers he was negotiating for, Sithole said, his influence would be felt in the new government and that would encourage the international community to work with Zimbabwe in its quest for economic recovery.
He said once the economy started to recover, enough jobs would be created for those returning, "because whatever the case, home will remain the best place to be; most of us are suffering in the diaspora."
John Shereni (not his real name), a freelance journalist employed by a local newspaper before it was banned by the government, expressed optimism that the independent media would recover.
"I am sure that parliament, given that it is now almost controlled by the opposition, and that ZANU-PF is no longer alone in government, will pass favourable legislation that will make us work without having to look over our shoulders," Shereni told IRIN.
"All indications point to a turnaround across the board. I will be able to go to a hospital and find the drugs that I need, walk into a shop and buy a commodity that I want at a reasonable price, and never consider working illegally in another country," he said.
Parallel market currency traders, who made a living by trading illegally in foreign currency, although concerned that their business would suffer in an economic turnaround, said they would rather have a political settlement than for the status quo to continue.
"There is nothing that beats living peacefully in your own country and for that reason I am happy that our political leaders have managed to swallow their pride and put the people first," Tonderai Gandiwa, a Harare-based foreign currency dealer, told IRIN.
"I will not have sleepless nights over loss of business in the event that the economy goes back to normal, because I can always go back to my job as a salesperson. In any case, I have managed to buy some properties that include a house and cars, and these will be important savings for me."
However, he warned that some of his colleagues who might not find employment could resort to crime because "they are now used to easy and quick money."