WASHINGTON (AP) — Shifting from confrontation to cooperation, Senate leaders of both parties expressed optimism Thursday that agreement was near on extending this year's payroll tax cut, renewing unemployment benefits and averting a federal shutdown.

Majority Leader Harry Reid, D-Nev., opened the Senate's morning session by saying he and the chamber's top Republican have held talks to resolve remaining disputes. With lawmakers itching to return home before the holidays, Reid said he and Senate Minority Leader Mitch McConnell, R-Ky., hope they can reach a deal "that would get us out of here in a reasonable time, in the next few days."

Standing just across the aisle, McConnell agreed with Reid — a sharp contrast to recent days, when the two have fired sharp partisan volleys at each other.

"We're confident, optimistic we'll be able to resolve both on a bipartisan basis," said McConnell, referring to one bill that would renew the payroll tax cut and jobless benefits, and a separate spending measure that would keep federal agencies open.

The turnabout in part reflected the calendar: 160 million Americans would get a sudden tax increase on Jan. 1 if the payroll tax cut was not renewed, and most government agencies would close this Saturday without agreement on spending legislation.

The drive to broker agreements also underscored a sense that weeks of partisan battling, in which each party accused the other of causing tax increases and a federal shutdown, had finally taken their course.

"We've done enough back and forth, the Republican leader and me, staking out our positions, and our positions are fairly clear to the American people," Reid said.

A clear sign of movement came late Wednesday, when aides said Democrats were abandoning their demand for a surtax on millionaires to help finance payroll tax cuts.

On a separate spending dispute, House Republicans had said Wednesday night that they would try pushing a massive $1 trillion spending bill through the House on Friday, relying only on GOP votes, to prevent a federal shutdown. Reid said Thursday that he believed remaining partisan disputes on that bill could be quickly settled.

Neither party wants to risk the wrath of voters by closing government agencies.

White House communications director Dan Pfeiffer said Wednesday that President Barack Obama had problems with some social, environmental and other provisions in the spending legislation. Pfeiffer said Congress should approve a short-term bill to keep the government open while disputes are resolved.

The pre-Christmas wrangling caps a contentious year in a capital hindered by divided government, with Democrats controlling the White House and Senate while Republicans run the House. Lawmakers have engaged in down-to-the-wire drama even when performing the most mundane acts of governing, such as keeping agencies functioning and extending federal borrowing authority, tasks that are only becoming more politically delicate as the calendar nears the 2012 election year.

The GOP-run House approved its version of a payroll tax cut bill this week, but it drew solid opposition from Democrats and Obama in part because it would force work on the Keystone XL oil pipeline from western Canada to Texas Gulf Coast refineries, which Obama would rather delay. They are also unhappy that the bill is financed by cuts to civilian federal workers, Obama's health care overhaul bill and other programs that Democrats say would avoid meaningful contributions from the rich.

Senate aides said a new, Democratic version of that bill would exclude a 1.9 percent surtax on people earning more than $1 million a year, a levy Democrats relied on to pay for their previous payroll tax cut bills. Instead, they said, their new legislation's savings would include higher fees that government-run Fannie Mae and Freddie Mac would charge to back mortgages and revenue from selling portions of the broadcast spectrum.

In one instance of cooperation, the Senate was expected to give final congressional approval Thursday to a $662 billion defense bill that would allow the administration to prosecute terrorism suspects in the civilian justice system.

The White House had initially issued a veto threat against the bill over language requiring the military to handle some terrorism suspects. An agreement was reached by including a provision ensuring that the role of domestic law enforcement agencies would be unchanged.

The bill, which the House approved Wednesday by 283-136, lays the groundwork for weapons purchases, U.S. military activity overseas and the Energy Department's national security programs. Reflecting a period of tight budgets and diminishing U.S. involvement in Iraq and Afghanistan, the legislation envisions $27 billion less spending than Obama proposed — money that will be supplied in separate legislation.

Also Wednesday, the Senate rejected rival Republican and Democratic proposals to amend the Constitution to require a balanced federal budget.

Democrats had worried that passage of the spending bill, by removing the threat of a federal shutdown, would take pressure off House Republicans to continue bargaining on the separate payroll tax legislation.

However, spotlighting the degree of disagreement between the two parties, they are even at odds over whether the $1 trillion measure is a bipartisan compromise or not.

Republicans and at least one Democrat said agreement had been reached earlier in the week. But the White House and Reid said disagreements remain, with Reid citing provisions relating to travel to Cuba and funding for the Commodities Future Trading Commission.

The spending bill would finance the Pentagon and nine other Cabinet-level departments, as well as scores of smaller agencies. It would trim the budgets of the Environmental Protection Agency, foreign aid and Congress itself while providing funds to combat AIDS in Africa, patrol the U.S.-Mexico border, operate national parks and boost veterans' health care.