The Alexandria City Council is considering a settlement that would kill city plans for a new parking garage in Old Town.

The proposed deal, according to City Council sources, would extend a 1985 agreement in which the owners of the one-acre lot at Queen and Lee streets promised to provide about 160 parking spaces through 1995. Under the new proposal, the owners would continue to provide parking for 10 to 15 years after 1995. The city would not buy the site for a new parking garage, but would provide some incentive to the present owners not to develop the property, sources said.

The plan represents the latest chapter in a decade-long dispute in which the city has bought the property, sold it, then made attempts to buy it again. City officials sold the property for $1.9 million in 1985, but the city would have to pay more than 2 1/2 times that amount if they proceed with condemning the lot for a garage some Old Town merchants have said is needed.

Many Old Town business leaders have agreed to pay a special levy to acquire the land and build the facility. Neighboring residents, citing the cost, have opposed the project.