New Hampshire Gov. John Lynch confirmed the "understanding," stopping just short of promising to appoint a Republican or an independent to serve out the remaining two years of Gregg's term.
The deal would give Obama his top choice for a team tasked with steering the nation out of recession. Republicans get to keep Gregg's seat for two more years, retaining the crucial 41 Senate seats they need to filibuster majority Democrats.
And Democrats, who control 56 seats and caucus with two independents, stand a better chance of flipping Gregg's seat into their ranks in two years by running a candidate against his rookie replacement or an empty seat than Gregg himself.
The two Democratic officials familiar with the discussions over the Senate seat disclosed the White House plans to make Gregg's nomination official on the condition of anonymity because a formal announcement had not yet been made.
The White House tried to stay out of the back and forth. But officials there did nothing to squelch the expectation that Gregg would be nominated to the post.
"Obviously, the president has great respect for Senator Gregg," White House press secretary Robert Gibbs said Monday. "I'm not going to get into personnel announcements before we are there."
Getting to a deal took days of negotiating after it became known last week that Obama was considering appointing the former Budget Committee chairman from New Hampshire to his Cabinet.
Gregg would become the third Republican in the Cabinet, if confirmed. The others are Defense Secretary Robert Gates and Transportation Secretary Ray Lahood.
The deal spares Gregg blame for delivering Democrats complete control of the Senate and a re-election campaign in Democratic-leaning New Hampshire.
Lynch's agreement, meanwhile, shores up his bipartisan credentials at a time when he's confronting a decades-old budget crisis at home.
The Republican expected to be named to Gregg's seat is Bonnie Newman, who served as Gregg's chief of staff during his time in the House. Newman is a veteran of the Reagan White House. Under the deal, she would not run in the 2010 election.
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