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NEW YORK — A settlement of up to $657.5 million has been reached in the cases of thousands of rescue and cleanup workers at ground zero who sued the city over damage to their health, according to city officials and lawyers for the plaintiffs.

They said that the settlement would compensate about 10,000 plaintiffs according to the severity of their illnesses and the level of their exposure to contaminants at the World Trade Center site.

Lawyers from both sides met on Thursday to discuss the terms of the settlement with Judge Alvin K. Hellerstein of the U.S. District Court for the Southern District of New York.

Payouts to the plaintiffs would come out of a federally financed insurance fund of about $1.1 billion that is controlled by the city. At least 95 percent of the plaintiffs must accept its terms for it take effect. If 100 percent of the plaintiffs agree to the terms, the total settlement would be $657.5 million. But if only the required 95 percent agreed, the total would be reduced to $575 million.

Lawyers for the plaintiffs estimated that individual settlement amounts will vary from thousands of dollars to more than $1 million for the most serious injuries.

The settlement, which took two years to negotiate, raises the prospect of an end to years of complex and politically charged litigation that has pitted angry victims against city officials, who questioned the validity of some claims and argued that the city should be immune from liability. “This is a good settlement,” said Marc Bern, a lawyer with a firm that represents more than 9,000 plaintiffs, “and we are gratified that these heroic men and women who performed their duties without consideration of the health implications will finally receive just compensation for their pain and suffering, lost wages, medical and other expenses, as the U.S. Congress intended when it appropriated this money.”

In a statement, Mayor Michael Bloomberg, called the settlement “a fair and reasonable resolution to a complex set of circumstances.”

Under the settlement, a claims administrator, who will be chosen by the lawyers in the case, would decide whether a given plaintiff had a valid claim, whether the plaintiff qualified for compensation and if so, for how much. The system is similar to the one used for payouts from the Sept. 11 Victim Compensation Fund to families of those killed in the terrorist attacks. The process is meant to screen out fraudulent claims.