SACRAMENTO — With a midnight Sunday deadline looming, Gov. Arnold Schwarzenegger is refusing to act on hundreds of bills awaiting his signature — a bid to spur legislative leaders into finally overhauling the environmentally fragile Delta.

A deal on the Delta, a conduit for two-thirds of the state's drinking water, has eluded legislators and governors for decades. Now, Schwarzenegger finds himself with leverage in the more than 700 bills sent his way this past legislative session. They range from the esoteric, such as regulations on honey, to the massive — a bill providing $400 million in extra cash for impoverished schools.

But Schwarzenegger, so far, has sat on all but three. And if a deal on the Delta can't be assembled by Friday, there's a good chance he won't sign any more.

If so, it would mark an unprecedented high-stakes maneuver for a governor who seemingly has thrived on the dramatic.

"There's no guarantee that it will pay off," Dan Schnur, director of the Jesse M. Unruh Institute of Politics, said of the governor's stalling tactics. "But there's an absolute guarantee that he won't get a water deal without taking this type of risk."

Talks on how to craft a Delta package have intensified this week after running aground in the late hours of last month's legislative session. Quietly, while the Legislature was on recess, the governor met with individual lawmakers to maintain momentum toward a

deal.

Emerging from a nearly two-and-a-half-hour meeting with Schwarzenegger on Wednesday, top Assembly Democrats and Republicans called the day's discussions positive and said they would continue meeting in hopes of reaching a deal by Friday night.

"Significant progress was made," said Assembly Minority Leader Sam Blakeslee, R-San Luis Obispo.

Added his Democratic counterpart, Speaker Karen Bass, D-Los Angeles: "Things are going forward in a very, very productive fashion."

That was a marked change from the response that followed a shorter round of talks Tuesday, with Bass and Senate President Pro Tem Darrell Steinberg, D-Sacramento, blasting the governor for tying a water deal to the fate of hundreds of other bills.

On Wednesday, though, Steinberg said he was confident the governor will consider the remaining bills "on their merits."

Despite that hope, several significant hurdles remain for an overhaul of the Delta — the heart of long-fought battles between environmentalists and farmers and across the geographic fault lines of Northern and Southern California.

There's no agreement on how to pay for the project, now expected to cost $8 billion to $10 billion, down from the nearly $12 billion discussed last month. The governor had insisted on borrowing against the state's strapped operating fund via a bond sale, but Democrats and some Republicans want water users to shoulder part of the burden through extra fees.

And though there is broad approval for a canal that would divert water south around the Delta, which is home to endangered fish and other wildlife, hurdles have arisen over how to pay for new reservoirs and what kind of water conservation measures to include.

If the leaders do reach a compromise, they would next need to sell it to their respective members — the governor would call a special session to take it up this fall. Voters would then have the final say on whether to sell the bonds to fund the project.

But even a reduced bond issue offset by user fees will face skepticism among an electorate that has watched lawmakers spend the past several months slashing services. Many observers are mindful of what happened in May, when a compromise tax increase was placed before voters, only to fail.

"It's a very narrow, hollow victory to come up with a bipartisan water package that is supported by the lawmakers in Sacramento but is rejected by the voters," said Jon Fleischman, a state Republican Party vice chairman and publisher of the GOP Web site Flashreport.org.

Schwarzenegger's veto threat first cropped up in the waning days of the legislative session, when he hoped to prod along progress on water reform, corrections cost-cutting and renewable energy standards.

So far, Schwarzenegger has approved only measures that honor Vietnam War veterans, defer some payments to schools until later in the fiscal year and restore funding to the state's Healthy Families insurance program for needy children.

Other bills at stake include a measure preventing health insurers from rescinding coverage absent evidence of consumer fraud and a measure that would add the Antioch and Dumbarton bridges to a state seismic retrofit program.

Schwarzenegger's spokesman, Aaron McLear, said Wednesday that the governor also "feels good" about the progress this week and said decisions on signing bills in coming days would depend on how the talks continue.

But he also wouldn't rule out Schwarzenegger racing the clock to sign or veto the measures on his desk. "We do have until midnight Sunday," he said.