Party leaders send in their biggest hitters as William Hague and George Osborne join meeting with Chris Huhne and Danny Alexander

If history can be derailed by the trivial then the signs from Whitehall were not encouraging yesterday. As the teams broke off for lunch, news seeped out of a difference. The Tories were tucking into sandwiches of cheese, chicken, beef or egg while the Lib Dems were munching tuna and cheese and onion sandwiches.

It turned out the menu choices symbolised a gulf in tastes, but not in political aspiration. Both sides said they engaged in the talks in a serious manner as they tried to meet, what they regard, as their marching orders from the electorate: to agree a stable and durable government.

David Cameron and Nick Clegg showed how seriously they are taking the talks by sending in their biggest hitters. William Hague, Cameron's "deputy in all but name", led the Tory side which included the shadow chancellor and election campaign manager George Osborne and the brains behind the manifesto, Oliver Letwin.

Across the table in one of the grand rooms of the Cabinet Office was Chris Huhne, the Lib Dem home affairs spokesman who is the most accomplished economist of the two teams; the schools spokesman David Laws, one of the party's sharpest brains who would marry the two manifestos with Letwin; Danny Alexander, Clegg's chief of staff and author of the manifesto; and Andrew Stunell, the former chief whip.

The two sides marched up the steps and through the glass doors, embossed with the royal crest, shortly before 11am. They came out shortly after 5.30pm to deliver virtually identical messages – they would meet again within the next 24 hours and, in an attempt to reassure the markets, would put the reduction of Britain's £163bn fiscal deficit as their main priority.

In the six and a half hours of talks, during which Clegg and Cameron spoke over the phone, and then met later for face-to-face talks, they addressed how a government led by Cameron could be formed. It is understood that three options were under consideration: an informal "supply and confidence" arrangement in which the Lib Dems would allow confidence measures, such as the budget and the Queen's speech, to be passed; a more formal arrangement in which the Tories would agree to pass legislation on schools and tax reform that would be acceptable to the Lib Dems, who would not join the government; or a full coalition in which the Lib Dems would sit in the cabinet.

Michael Gove, the shadow schools secretary, indicated earlier that he expected the negotiations would end up with the second of the three options. He told the Andrew Marr Show on BBC1: "As to whether or not it should be a minority government or a coalition, there may be options in between those two that suit both sides and provide the degree of stability and also the degree of collaboration."

Cameron and Clegg, who were tearing strips off each other less than a week ago, do not feel comfortable that they are having to enter negotiations. These provide a daily reminder for the Tories that Cameron failed to win an overall majority despite facing an unpopular prime minister.

Clegg, meanwhile, knows he and his party could be hit badly at the next election by Labour if they are seen to prop up a Tory government that embarks on what he once described as "savage" spending cuts to reduce the deficit. He also knows that it will be all but impossible to sell any deal to his party if electoral reform is not part of the programme. Cameron's suggestion of an all-party committee to examine the issue does not go far enough for most party members.

Lord Ashdown, the former Lib Dem leader who is advising Clegg, made clear electoral reform would have to be on the table. "I don't believe that anybody can now establish a new government who is deaf to the calls from the British people for a reform to our political system," he told the Marr Show. "Part of that is electoral reform, there can be no doubt."

The two sides are papering over their differences in this area by talking about "political", rather than "electoral", reform. A deal could be brokered if the two sides agreed to accept the findings of the cross-party committee that would then be put to a referendum. These could marry Tory proposals – shrinking the House of Commons by 10% by making constituencies the same size – with Lib Dem proposals for a fixed term parliament. But Tories indicated that Cameron was highly unlikely to sign up to electoral reform for the Commons, though he could accept a more proportional system for elections to the House of Lords.

The two sides will have found more common ground in the other three priority areas in the Lib Dem manifesto. These are: targeting educational resources on deprived communities, changing the tax system so that lower income earners do not pay income tax, and rebalancing the economy to boost a low carbon economy.

The parties know they are facing high stakes. An agreement will cause grief for Cameron and Clegg, who are making an effort to consult their parties. Failure would dismay voters who expect to see a stable government soon.

Ashdown and Gove both indicated that the party leaders were heeding the concerns of voters. "The central proposition is how do we provide a government of stability at a time of crisis?" Ashdown asked. "I think what has to inform our discussions, and I think is informing our discussions on all sides, isn't the sectarian party interest, but the national interest." Gove, a key member of Cameron's inner circle, reached out to the Lib Dems by saying he was prepared to give up his expected cabinet post if that would help a deal. "I'd like to see an arrangement which the Liberal Democrats are happy with, and it's in the nature of any negotiation that you don't go in there, lay down the law [and] shove your papers on to the table."

The two sides, who will watch nervously as the markets open this morning, know they do not have long to signal where a deal can be reached.