The deal, presented to President Susilo Bambang Yudhoyono, protects salaries, pension funds and medical allowances threatened by privatisation moves.

Minister of State Enterprises Sugiharto ordered the company's management to honour the rights of employees and pensioners.

"PT KAI employees deserve pay, pension funds and health allowances equalling those received by civil servants," Sugiharto told a press conference at the presidential office.

The government will also reshuffle the company's management. The employees had demanded management be dismissed for disappointing performance and alleged corruption.

The government had prepared buses and trucks to anticipate the train strike, which was set for Aug. 8 through Aug. 10.

State electricity company PT PLN had warned of blackouts across Java and Bali as a result of the strike because the supply of coal and petroleum to several power plants on the dense islands is dependent on PT KAI.

The dispute caused concern within the International Transportation Federation, whose secretary-general, David Cockroft, wrote to President Susilo early this week to ask that the latter address the issue accordingly.