South Cyprus, which is marking this Independence Day, joined the European Union in 2004 and the self-proclaimed Turkish Republic of Northern Cyprus is recognized only by Turkey. A new round of U.N.-led negotiations to end the division was initiated in late 2008 and has been described as the "last chance" for Cyprus peace.

In light of growing public pessimism about peace prospects, Clerides said the specter of a permanently divided Cyprus looms, if a solution cannot be found soon.

"The question is, as the time goes by, it becomes more difficult to solve the problem and the risks of a partition are looming in the air," he said.

Vassiliou agrees, and said, ""It's both a happy and unhappy country, people have succeeded in building their lives again. But, at the same time, they are worried about the future - not because they are afraid of being attacked or killed, but they know that this division is something that cannot stand."

The failure to agree to a deal could spell the end to any future U.N.-sponsored dialogue, and both community leaders have stressed that there is "no plan B" or other alternative.