A law granting amnesty to those prosecuted over Catalonia's attempt to secede from Spain was included in the deal, according to a joint PSOE-Junts statement seen by Reuters.
Santos Cerdan, a senior Socialist party official who has led negotiations, told a press conference in Brussels that while his party still had "profound disagreements" with Junts, it had put them aside in the interests of forming a "stable government", and the agreement included support for a full four-year term.
Among the beneficiaries of an amnesty is Carles Puigdemont, the Junts leader currently living in exile in Waterloo, Belgium, because of disobedience and embezzlement charges he himself faces as leader of Catalonia during the separatist drive that came to a head in a vote and unilateral declaration of independence in 2017.
If the amnesty is approved by congress, Puigdemont would be able to return to Spain and potentially run for office.
Sanchez is trying to form a government after a July election produced no outright winner.
He reached a deal to govern in coalition with the hard left Sumar platform last month but also needs several other smaller parties - who have supported him in the past - to back him in an investiture vote that could take place as soon as next week.
At present, even with Junts' support, the Socialists would still fall short of an absolute majority of 176 seats to win a first round vote in the 350-seat congress, or to secure a simple majority in a second vote.
They still need the support of five lawmakers from the Basque Nationalist Party (PNV), which offered early support but said it would wait to see the details of a Socialist-Junts deal before confirming.
The vote has to be concluded by Nov. 27 or fresh elections are automatically triggered.
AMNESTY
An amnesty could exculpate as many as 1,400 activists and politicians involved in the attempt to separate Catalonia from Spain.
Key sticking points during the negotiations were what kind of crimes would be covered by the amnesty, and whether the separatists were prepared to explicitly renounce further unilateral action.
The amnesty would be the largest in Spain since the 1977 blanket forgiveness for crimes committed during the Francisco Franco dictatorship, and the first amnesty law approved in the European Union since 1991, according to Spain's research council CSIC.
The potential amnesty has met fierce condemnation from Sanchez's conservative opponents who have organised large protests and accused him of putting the rule of law in Spain on the line for his own political gain.
The proposed amnesty bill sparked several nights of demonstrations and riots this week.
Nearly 7,000 protesters gathered on Tuesday, according to authorities, carrying placards emblazoned with the words "No to amnesty" and "Spain does not pay traitors", TV images showed.
Reacting to the news of a deal today, the main opposition centre-right Partido Popular spokesman Cuca Gamarra said Spain was looking at "a shameful and humiliating deal."
On Wednesday, the European Commission's Justice Commissioner Didier Reynders wrote to the Spanish government asking for more details about a possible amnesty.
"This has become a matter of considerable importance in the public debate and the Commission has been contacted on this matter, including by a large number of citizens," he wrote in a letter to Spanish Presidency Minister Felipe Bolanos.
Bolanos responded on Wednesday, saying: "Should an amnesty bill be registered [in parliament], be assured that we will explain to you all the details of such a law, as well as the position of our government."
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