Thousands of Iberia passengers were hit by the pilots' strike

The move came after Iberia promised that its plans to launch a new low-cost airline would not lead to job losses.

Union officials and Iberia managers reached a deal during the third day of the strike, which had led to the cancellation of more than 240 flights.

Iberia had threatened to ask a court to declare the strike action illegal if no compromise deal was agreed.

'Coming together'

The strike began over concerns by pilots that Iberia's plans to set up a low-cost airline - provisionally called Catair - would result in job losses and lower wages.

But while Iberia gave guarantees on jobs after talks at Spain's transport ministry on Wednesday, it refused to meet union demands for an annual 2% pay rise above inflation.

"In the end, positions have come together giving a little to everyone," said pilots union boss Bernardo Obrador.

"We have jobs guaranteed which is what this was all about, and Iberia have the chance to continue with (new) investments."

The strike, which began on Monday and mainly affected flights serving destinations within Spain, came during one of the busiest weeks of the year for the airline.