After six years of negotiation, the agreement is likely to be sealed, despite pressure from Baltic states for the crimes committed by Stalin to be brought into the scope of the law.

In 2005, Luxembourg tried to use its EU presidency to push through tough EU-wide legislation on the subject but was blocked by Italy's centre-right government, which has lost power. Last year the temperature rose again following the publication by a Danish newspaper of 12 caricatures of the Prophet Mohamed, sparking protests that highlighted European divisions about freedom of expression.

Consensus over the deal has been achieved by whittling away at the impact of the legislation, leaving a great deal of discretion to individual countries to implement their own law.

British officials said yesterday that the text would require no legal changes in the UK, which has long punished incitement to racial hatred and last year passed a Religious and Racial Hatred Act. They say that academic freedom to question aspects of the Holocaust or other historical events would not be compromised in Britain.

The latest draft text would criminalise those guilty of "publicly condoning or grossly trivialising" crimes of genocide recognised by the International Criminal Court "when the conduct is carried out in a manner likely to incite violence or hatred".

There will be no Europe-wide ban on the use of Nazi symbols - one of the original objectives of the law's drafters. National legislation in many nations, including Germany and Austria, already goes much further and will remain in force in those countries. All 27 EU nations will have to ensure that maximum jail terms of one to three years are at the disposal of their courts. Britain's most severe tariff for such offences is already seven years.

The European Network Against Racism said it was worried about a deal on "a weak framework decision on racism and xenophobia" which would be "without any substantial intent to provide strengthened protections for those who experience racist crime and violence in Europe". The measure has also been drafted to prevent it creating an EU-wide rule covering the denial of other historical events such as the Armenian genocide. Britain also pressed successfully for a provision to ensure that attacks on religions are covered only when they are of a xenophobic or racist nature. That means that a criticism of Islam or other faiths would not, per se, fall into the scope of the text.

Last night, Lithuania and Estonia said they were unlikely to block a deal. They had pressed hard for the crimes committed by the Soviet Union under Stalin to be brought into the scope of the law. That was resisted by most countries but a compromise was being drawn up which will include a political declaration condemning the mass murder committed under Stalin.

By Stephen Castle in Brussels