RAIL unions have forced the State Government to abandon plans to axe more than 400 jobs from the CityRail network and to endorse a pay rise well above the 2.5 per cent cap imposed by the Premier, Morris Iemma, and his Treasurer, Michael Costa.

While the Rail, Tram and Bus Union yesterday agreed to call off its 24-hour strike planned for July 17, which would have caused havoc in the middle of World Youth Day celebrations, the Government has been forced to make humiliating concessions.

The dispute has also driven a wedge between Mr Iemma and his deputy, John Watkins, who is also Transport Minister and whom unions were last night hailing as a peacemaker.

The secretary of Unions NSW, John Robertson, yesterday referred repeatedly to the Deputy Premier's "positive and constructive" intervention in the dispute, comparing it with Mr Iemma's statement on Monday likening rail workers to terrorists.

"I think the minister is someone who recognises the frustration the workers were feeling and why we've ended up in this situation and the role he's played has been positive and constructive and I think could lead to a satisfactory resolution of all outstanding matters," Mr Robertson said. "The Premier has played no role other than inflammatory comments."