The federal government is offering more than $2 billion in compensation for former students who suffered abuse at native residential schools.

Deputy Prime Minister Anne McLellan made the announcement today during a news conference with cabinet ministers and abuse survivors, including Grand Chief Phil Fontaine of the Assembly of First Nations.

"Bringing closure to this chapter of our history lies at the very heart of reconciliation," McLellan told the conference in Ottawa.

"I am pleased to announce that we have made good on our shared resolve to deliver what I firmly believe will be a fair and lasting resolution of the Indian school legacy."

Fontaine said the package covers "decades in time, innumerable events and countless injuries to First Nations individuals and communities."

"It's a wonderful day," he added. "I know that every moment has been worthwhile. Justice has prevailed."

Justice Minister Irwin Cotler also hailed the package, describing the physical and sexual abuse which took place at the residential schools as "the single most disgraceful, racist and harmful act in our history."

"It's my profound hope that this agreement will mark a turning point," he added.

Mike Benson, executive director of the National Residential School Survivors Society, called the package a "first step in the right direction."

He said, however, that the package does not address the issue of survivors that died. "That is a serious concern for us because we're losing survivors every single day," Benson said, "and it should have been in the agreement."

The agreement in principle was signed on Sunday. It must be approved by the courts and is open to more than 80,000 former students.

Each eligible former student who applies would be entitled to $10,000 plus $3,000 for each year spent in the schools.

Former students now aged over 65 can apply for a fast-track advance payment of $8,000.

The package did not include a national apology for the abuse. McLellan said that was not a part of the negotiations "for this process."

The deal says those who take the compensation payments would release the government and the churches which ran the schools from further legal liability, except in cases of sexual assault or serious physical abuse.

The Assembly of First Nations, Canada's most influential native rights group, also called for a truth and reconciliation forum, new healing programs, an official apology and improvements to a bogged-down federal process that's meant to speed settlements out of court.

Former Supreme Court Justice Frank Iacobucci was named last May as a special mediator. He has spent months working with government officials, the assembly, former students and their lawyers.

Meanwhile, some politicians wondered what inspired the government to finally act.

"It's wonderful news but it has the stink of desperation," said NDP aboriginal affairs critic Pat Martin. "It's a sea-change in the mindset of the Liberals.

"And you can attribute it to the election or some moral and ethical awakening -- I don't care. I'm just disappointed that it took a federal election to break the ice jam."

School abuse

During much of the last century, about 100,000 children between four and 18 years of age lived in residential schools in every province but New Brunswick and Prince Edward Island.

At least three generations of pupils were removed from their families and culture while they attended the once-mandatory church-run institutions.

Native leaders say former students suffered physical and sexual abuse along with cultural losses.

Litigation

More than 12,000 people began suing Ottawa after it acknowledged that abuse in the now-defunct school system was widespread.

McLellan stressed last May that Ottawa wants legal "finality" -- namely, a solution that would derail potential class-action lawsuits claiming billions of dollars in damages.

Ottawa has been blasted by critics for forcing claimants to languish for years in litigation. The federal government has countered that it would be irresponsible to simply cut cheques without due diligence.

Of about $83 million spent last year by the federal Office of Indian Residential Schools Resolution, $17 million -- 20 per cent -- was used to resolve 593 claims. The rest paid for government lawyers, staff salaries, research fees and other administrative costs.

Wednesday's announcement is in addition to at least $4 billion to be committed to fight aboriginal poverty when the prime minister attends a first ministers summit later this week in Kelowna, B.C.