WASHINGTON (Reuters) - Television set makers and U.S. cable operators reached a peace accord on Thursday to allow digital cable signals to be directly piped into television sets without extra equipment, clearing a major hurdle in the transition to digital television.

The deal, which requires approval from the Federal Communications Commission, would bury the hatchet between two industries that have squabbled for years over how to offer the higher-quality pictures and advanced services that digital television promises.

If approved by the FCC, the roughly two-thirds of U.S. households that subscribe to cable-TV services would be able to enjoy digital pictures over high-definition sets without shelling out more money, as some consumers do now, for set-top boxes to read the signals.

Industry officials hailed the agreement as a major breakthrough that would serve as the foundation of billions of dollars of future sales though they cautioned that new cable-ready sets would not be available until 2004.

"This wears down almost totally the largest obstacle or bump for HDTV," said Gary Shapiro, president of the Consumer Electronics Association trade group.

But another major question -- the extent to which consumers should be able to record shows for their personal use -- remains unresolved.

NO INPUT FROM HOLLYWOOD

While the agreement outlines some copy-protection guidelines, it was drafted without the input of Hollywood or consumer groups, which have strong opinions and powerful friends in government. Satellite TV providers could object as well, as the agreement if adopted would force them to abide by the same rules.

Officials for a motion-picture trade group and satellite TV provider EchoStar Communications Corp . both declined comment, saying they were still looking over the agreement.

Originally designed to be complete by 2007, the switch to digital has yet to take off due to copyright concerns, limited programming and high equipment prices. Congress had threatened to step in to push the transition forward and the FCC ordered television set makers to include digital tuners in large sets starting in 2004 and in most new sets by mid-2007.

The deal would establish nationwide technical standards for cable systems, ensuring that high-definition television sets would be able to plug into nearly any cable system in the country and receive digital signals without requiring costly extra equipment.

It also would forbid cable companies from electronically blocking off any output ports on the televisions -- ensuring that consumers would be able to hook up everything from home-theater speakers to data networks that allow viewing elsewhere in the house.

Digital recorders that rely on high-speed "Firewire" connections would also be supported.

Signing off on the deal were 14 consumer electronics manufacturers, including Japan's Sony Corp. and the Netherlands' Philips Electronics NV, as well as cable operators which have 75 percent of the U.S. market, including Comcast Corp. and AOL Time Warner Inc.

FCC TO ACT FAST

FCC Chairman Michael Powell, who has been bludgeoning the industries to move more quickly to switch to digital, praised the agreement and promised the agency would act expeditiously.

"In a 'plug and play' world, consumers will be able to plug their cable directly into their digital TV set without the need of a set-top box," Powell said. "'Plug and play' will be good for the future of these industries, good for the digital transition, and most importantly, good for consumers."

The groups recommended a complicated three-level protection scheme which would allow consumers to make unlimited copies of regular material while placing limits on pay-per-view and other premium programs.

Other types of protections could be determined by the FCC, the two industries said.

The two sides said they would sit down again in January to hash out standards for two-way services, which would add powerful interactive features that could, for example, allow consumers to order up movies for viewing without leaving their couches.

Existing high-definition TV sets, which consumers mostly use now to screen DVDs and other prerecorded material, would be able to hook into cable systems using separate set-top boxes.

Through November, the consumer electronics industry sold almost 2.2 million digital units, including integrated sets as well as monitors that would require a set-top box to receive the crisper, higher-quality digital signals.

The Consumer Electronics Association estimates that 4 million digital television units would be sold next year.