The talks with Hizb-i-Islami were the first public face-to-face negotiations in the capital between Karzai and representatives of an insurgent group. Hizb-i-Islami, led by former Prime Minister Gulbuddin Hekmatyar, is far smaller than the Taliban, but is active in at least four provinces of eastern Afghanistan and parts of the north.
Special Report: Afghanistan
Its defection from the insurgency would be a coup for Karzai and could encourage some members of the Taliban to explore their own peace deals.
The talks come ahead of a three-day peace conference the Afghan government is hosting the first week of May in Kabul. Hizb-i-Islami negotiators said they had not yet decided whether the group would be represented at the gathering.
A member of the delegation, Qaribur Rahman Saeed, characterized the two-hour working lunch with Karzai on Tuesday as "positive for both sides." It was the second meeting the delegation had with Karzai at the presidential palace since it arrived in early March.
The delegation plans to leave later this week and submit a report to Hekmatyar. Members said that would take 15 to 20 days because Hekmatyar is in hiding, the delegation said.
Karzai's spokesman, Waheed Omar, said the government expressed hope for future talks, but said it was too early to judge progress. He also made clear there were some conditions in Hizb-i-Islami's 15-point peace plan that were unacceptable, including the rapid withdrawal of U.S. and other foreign troops.
"There are some values like the constitution of Afghanistan, respecting human rights and some other issues that the Afghan people and the Afghan government are not willing to deal on," Omar said. He added the government would not agree to the departure of foreign troops until Afghan forces were ready to defend the country.
The plan calls for foreign forces to begin withdrawing in July - a year ahead of President Barack Obama's desired deadline to begin a pullout. The delegation acknowledged this was a sticking point, but said the group was flexible on the issue.
Under tight security, the five-member negotiating team has shuttled around Kabul having private meetings with Karzai, Vice President Mohammad Qasim Fahim, top leaders of parliament, former members of the Taliban, and a few members of the international community, including Staffan de Mistura, the top U.N. official in Afghanistan.
"We have delivered our proposals to the government, the politicians, the social organizations to the parliamentarians and also diplomats," Saeed said, sitting cross-legged on the bed of a hotel room. "We are hopeful to continue these discussions. This is not the last draft."
Delegates did not meet with U.S. officials in Kabul, but Saeed hinted the U.S. was not standing on the sidelines, saying "we have channels in the U.S. through our representatives."
The insurgent peace plan calls for presidential, parliamentary and provincial elections to be held in the spring of 2011 after all foreign troops have left. The group said the newly elected parliament would have the right to rework the constitution. Karzai has in the past agreed to negotiate with those who embrace the constitution.
"Any internal and external elements who are opposed to this agreement and insist on fighting, we all will jointly deal with the warmongers to save our homeland from their curse," the plan states.
C. Christine Fair, assistant professor at Georgetown University's Security Studies Program, said Hekmatyar has always been viewed differently than the Taliban's leader, Mullah Mohammad Omar, partly because he always maintained a political operation.
"He was never seen as an irreconcilable," she said. "He's very different from Mullah Omar."
Making peace with Hekmatyar, however, might not be a game-changer in the war because his power does not extend to the volatile south where the Taliban control large swaths of the nation. And making peace with Hekmatyar, whose rockets heavily damaged the capital in the 1990s, might not be embraced by the Afghan public.
"My only concern is that Karzai is doing what is in his best interest - he's thinking about consolidating power," Fair said. "Many Afghans have some issues about how he's gone about this. They don't view this as a reconciliation process, so much as they view it as cutting a deal."
Hekmatyar, who is in his early 60s, was a major recipient of U.S. military aid during the war against the Soviets in the 1980s, but fell out of favor with Washington because of his role in the civil war that followed the Soviet withdrawal. The U.S. government declared Hekmatyar a "global terrorist" in February 2003, saying he participated in and supported terror acts committed by al Qaeda and the Taliban.
Unless that tag is removed, the designation could complicate any move by the U.S. to sign off on a deal, even though in recent years Hekmatyar has expressed a willingness to negotiate with the Karzai government.
Among the complications in striking a deal with Hizb-i-Islami is the deep suspicion and distrust surrounding Hekmatyar, who has a reputation for ruthlessness, violence - and his many critics would say treachery - unparalleled in recent Afghan history.
He was considered among the heroes of the war against the Soviets in the '80s, when his fighters received tens of millions of dollars in U.S. military assistance funneled to him through Pakistan, which was for years his major patron.
But it was Hekmatyar's role in the bloody civil war that broke out after the Soviets withdrew in 1989 that made him one of the most reviled figures in the country. After the pro-Soviet government collapsed, Hekmatyar was named prime minister in March 1993, but he fell out with President Burhanuddin Rabbani nearly a year later, joining the opposition that tried to seize power.
Hekmatyar's fighters rained down rockets on Kabul, nearly destroying the city. Nevertheless, he struck a deal with the government and again became prime minister in June 1996.
But years of fighting had left the government so weakened that Kabul fell to the Taliban the following September, forcing Hekmatyar to flee to the north. He made his way to Iran, where he lived until the Iranians expelled him in 2002. He returned to the Afghanistan-Pakistan region, where he joined forces with the Taliban and called for a jihad against the United States.
Despite the ongoing peace negotiations, fighting continues unabated across the nation. Five civilians were killed Tuesday when their van hit a bomb on a road outside Herat in western Afghanistan, police spokesman Raouf Ahmadi said. NATO reported a service member died in a bombing in southern Afghanistan.
The number of U.S. troops killed in Afghanistan has roughly doubled in the first three months of 2010 compared with the same period last year as Washington has added tens of thousands of additional soldiers to reverse the Taliban's momentum.