President Assad could be forced into exile as part of a deal between Russia and the West to combat the rise of Isis in Syria, under plans discussed at the G7 Summit in Germany.

Despite continuing tensions with Russia over Ukraine diplomatic sources at the summit suggested that there was new common ground between the West and Moscow on the need for a diplomatic solution to the impasse in Syria.

The deteriorating situation on the ground both in Syria and Iraq dominated Sunday night's leaders' dinner at the Schloss Elmau resort while it also figured in bilateral talks between David Cameron and President Obama.

Downing Street said after the meeting that while significant problems remained the potential for a deal which would see some sort of limited regime change in Damascus was greater than it had been for more than a year.

Assad featured prominently in Cameron and Obama's talks (Getty) (Getty Images)

"We don't want to overplay it but there is a greater sense that a political solution is possible than there has been for many months," said the source.

At the end of the Summit the German Chancellor Angela Merkel suggested that it was "very desirable" for the G7 to work "in tandem" with Russia to find a solution to Syria and described Moscow as an "important player" despite ongoing tensions over Ukraine.

The new optimism ironically stems from the continued success of Isis against Syrian Government troops along with the failure of the Western backed so-called moderate opposition.

This had led both Russia and the US to conclude that the only way to take on Isis in the long term is to accept the need for a new Government in Damascus that is broadly acceptable to both countries and that can be supported militarily in the fight against extremism.

Such a deal could result in President Assad being granted asylum outside the country but with large parts of the current regime remaining intact under new leadership.

Downing Street confirmed that Isis had dominated the hour long discussion between Mr Obama and Mr Cameron and expressed cautious optimism that compromise might be possible.

"There was a pretty frank and realistic exchange (between the two leaders) about the situation on the ground in terms of the moderate opposition and their ability to take or be holding ground from either the regime or from Isil," they said.

"But they were both a bit more optimistic about the political process.

"The idea is that it might be possible to work with the Russians on a transition with a different leadership in Syria.

Ancient monuments under Isis threat Show all 8 1 /8 Ancient monuments under Isis threat Ancient monuments under Isis threat Isis seizes Palmyra The ancient oasis city of Palmyra Getty Ancient monuments under Isis threat Isis seizes Palmyra A partial view of the ancient ruins Getty Ancient monuments under Isis threat Isis seizes Palmyra The ancient Palmyra theater Reuters Ancient monuments under Isis threat Isis seizes Palmyra A view of the ancient Syrian city of Palmyra Getty Ancient monuments under Isis threat Isis seizes Palmyra The Temple of Bel Reuters Ancient monuments under Isis threat Isis seizes Palmyra Palmyra's famous graves AP Ancient monuments under Isis threat Isis seizes Palmyra The ancient castle Getty Ancient monuments under Isis threat Isis seizes Palmyra A sculpture depicting a rich family from the ancient Syrian oasis city of Palmyra, displayed at the city's museum Getty

"The Prime Minister has spoken to President Putin about this and it was also discussed by the American Secretary of State John Kerry when he visited Russia recently.

"I think that the actual situation on the ground in Syria with the way Isil are operating there is making the Syrian regime reflect upon their position.

"We wouldn't overplay it. We realise that there is still a long way to go but to an extent there is an opportunity to try and put and put some momentum back into this in the way that there has not been for the last year or so."