An EU official said at a meeting of EU foreign ministers in Brussels that 37 people and four companies would be added to the EU's Zimbabwe sanctions list.
The breakthrough between Zimbabwe's rivals appeared to follow South African President Thabo Mbeki's agreement late last week to expand the mediation process to include the African Union, the United Nations and other SADC officials.
Mbeki has been mediating in the crisis for more than a year and had been increasingly criticised, especially by the MDC, which accused him of taking too soft a line with Mugabe.
In Harare, many Zimbabweans cautiously welcomed the agreement and a handshake between Mugabe and Tsvangirai, at their first meeting in a decade.
Newspaper vendors enjoyed brisk business as people thronged newsstands to buy the only daily newspaper available, the government-controlled Herald which had a picture of Mugabe shaking hands with Tsvangirai on its front page.
"People have been lining up to buy the paper, or at least look at the picture. Many cannot believe that the old man and Tsvangirai actually sat together, let alone held hands," said Tapera Guyo, a newspaper vendor.
Tsvangirai had previously refused to enter formal talks unless government militias stopped violence he says has killed 120 of his supporters. He also wanted Mugabe to recognise his (Tsvangirai's) victory in the first round of the presidential poll on March 29.
The negotiations are expected to be tense and possibly acrimonious. The MDC has accused Mugabe and ZANU-PF of violating human rights and rigging elections.
Tsvangirai has been arrested at least half a dozen times by security forces in the past two years, and he was beaten along with dozens of supporters in an aborted anti-government protest last year.
"This is just the first step on a journey whose duration and success is dependent on the sincerity and good faith of all parties involved," Tsvangirai said in a statement on Tuesday.
Mugabe, 84, has dismissed the MDC as a puppet of the West and vowed never to let it take power. The president, in power since independence from Britain in 1980, has also insisted that the opposition accept his unmopposed victory last month.
Zimbabwe's economic collapse under Mugabe's rule has plunged the once prosperous country into inflation of at least 2 million percent, crippling food and fuel shortages and 80 percent unemployment.
