"In light of the substantial and constructive proposals made by the defendants, all parties have agreed to seek adjournment of the federal court proceedings," Richard Parker, director of the agency's Bureau of Competition, said in a statement.
The court had been scheduled to begin hearing the case later this month in San Francisco.
The postponement was described as "open-ended" and would clear the way for resumption of negotiations. The FTC Had sought to block the merger because of competitive concerns, especially in the Alaska and West Coast oil and gasoline markets.
The agency argued that this dominance would lessen competition in the West Coast oil markets, especially retail gasoline sales in California.
The West Coast relies heavily on oil from Alaska.
BP Amoco initially agreed to reduce its Alaska holdings to about 55 percent, but that was not sufficient to sway FTC antitrust lawyers. BP Amoco argued that oil prices are set in a world market and that its Alaska holdings pose no threat to West Coast competition.
In recent weeks, private negotiations have been under way to discard all of Arco's holdings in Alaska, but FTC lawyers were said to be concerned about the buyer's standing to compete.
While some details of the final sale and other aspects of the BP Amoco-Arco merger remained to be worked out, the breakout of legal action provided strong signals that a final merger has good prospects of approval.
In any case, the sale of the Arco assets appeared to remove the most substantial FTC objections.
Phillips, based in Bartlesville, Okla., has agreed to pay between $6.5 billion and $7 billion for the Arco assets in Alaska, according to the Wall Street Journal.
By H. Josef Hebert