Under the agreement, 6,500 of the 19,000 former Maoist rebels who have been living in camps since the end of the insurgency in 2006 will be integrated into the national army.
The former rebel fighters are to be under the command of the army but will be used for noncombat work such as construction, forestry and industry security.
The remaining ex-fighters will be offered a rehabilitation option with up to 900,000 rupees ($11,500) in startup cash to begin their new lives.
The Maoists gave up their decade-long armed revolt in 2006 and joined a peace process. They confined their fighters to U.N.-monitored camps and locked up their weapons, joined mainstream politics and contested elections.
However, there were strong disagreements among the main parties on the future of the former rebel fighters.
The agreement Wednesday breaks the biggest hurdle that had blocked the peace process.
The parties also agreed to work together to write a new constitution, with the first draft to be ready in a month.
A new constitution was supposed to be written by May 2010, but the deadline has been extended three times.