Cappio had vowed to keep up his hunger strike until he died unless President Luiz Inacio Lula da Silva's government canceled the $2 billion project to divert river water through a network of canals. He says it would harm the environment and help big business at the expense of the poor.

The 59-year-old leftist priest stopped his protest after five hours of talks with the government's political coordination minister, Jacques Wagner, and the Vatican's ambassador to Brazil, Lorenzo Baldiserri.

The head of the National Bishops Conference of Brazil, Odilo Scherer, said the Vatican had intervened in the case by asking the government to seek an accord with Cappio. But he criticized the bishop for using a hunger strike as a tactic.

Cappio said his decision was based on a government pledge to begin talking with concerned parties on other possibilities for the project before starting work.

The government also committed itself to pushing through Congress 300 million reais ($130 million) per year in funding for a 20-year plan to revitalize the polluted Sao Francisco River and protect the region's environment, he said.

The original budget for environmental aspects of the project -- which is still awaiting a final go-ahead from the state environmental watchdog Ibama -- had been meager.

OLD ALLIES

The dispute was an uncomfortable one for Lula, who took office in 2003 as a champion of the poor and a campaigner for the environment. Cappio was an old ally of his during his rise from grass-roots politics.

The bishop, who has campaigned to save the river and worked with the rural poor for years, sang a hymn before announcing the agreement to call off the fast.

"The key was extending talks and debate before the beginning of the project," said Wagner, standing at his side.

Dozens of local people and supporters who have attended nightly Masses held by Cappio cheered the news. But others were skeptical.

The bishop's adviser, Adriano Martins, said that based on the Lula government's record, "I have all the reasons in the world to distrust these promises."

Cappio said he could go on hunger strike again if the deal was not honored.

The project was to pump water from the Sao Francisco River to 12 million people in drought-hit areas of the arid northeast, the poorest region in this vast country.

Engineers were to dig 440 miles (700 km) of canals and build pumps to transfer water from the river across four states. The 1,700-mile (2,700-km) river rises in Minas Gerais state and flows into the Atlantic Ocean.

In a letter delivered to Cappio, Lula reminded him of his own roots in a poor family in the northeast.

"When I was a boy I had to collect rainwater to drink and walk kilometers with a bucket on my head to get a little water for the house," Lula said.