ERBIL, Iraq — Markets are bustling with shoppers seeking new holiday outfits. Airport flight boards feature packed schedules. And political tempers, which were erupting a few months ago, are tamped back within the bounds of diplomatic niceties.

These scenes illustrate a remarkable turnaround in relations between Iraq’s central government in Baghdad and the Kurdish regional government in Erbil since last fall, when Iraqi troops were battling Kurdish fighters after a controversial Kurdish referendum for independence. After the vote, Iraqi forces reasserted federal control over key oil installations and banned international flights to Kurdish airports, depriving the Kurds of two of their most potent symbols of autonomy.

Ahead of the Kurdish new year festival on Wednesday, Iraqi politicians announced an agreement capping months of back-room negotiations aimed at alleviating the political fallout and the Kurds’ economic hardships and ultimately at bringing Iraq’s Kurdish region back into the fold.

Prime Minister Haider al-Abadi approved the transfer of $268 million to the Kurdish regional government to pay the salaries of Kurdish security forces and thousands of civil servants, whose livelihoods have been hostage to the dispute between the two capitals. Those political battles center on the Kurdish goal of independence from Baghdad, and the inconvenient fact for the Kurds that they are dependent on federal money while they pursue that dream.