Sir David Henshaw said he believed there was a plot against him

Sir David Henshaw, the chief executive, had earlier accused leader Councillor Mike Storey of conspiring to undermine him and remove him from office.

It came after e-mails between Mr Storey and chief press officer Matt Finnegan were uncovered by an internal inquiry.

The pair said on Wednesday that they would work together for "the best interests of the city".

An independent mediator from outside of the council will be appointed.

External investigation

Mr Storey said: "I am pleased we are both committed to this process of mediation with the best interests of the city in mind."

Mr Henshaw said: "We have both always had the best interests of the city as our shared objective, and I am pleased we have both committed to mediation."

Mr Henshaw had earlier faced calls for him to resign from the Downtown Liverpool in Business group, which represents the city's private sector.

Chairman Frank McKenna said: "With such open animosity between him and the council leader, Sir David's position must now be untenable and he should resign sooner rather than later."

He said Mr Storey and the Liberal Democrat party should also consider his position.

'Clear conspiracy'

The row is now in the hands of the Standards Board for Local Government. Mr Storey has said he is confident it will clear him of misconduct.

Phil Halsall, the council's executive director for resources, said on Tuesday there had been a "clear conspiracy" between Mr Storey and Mr Finnegan to force out Mr Henshaw.

He said Mr Storey had promised to protect Mr Finnegan from an internal audit review and added that their behaviour "fell far short of the standards expected by the council or by national codes".