Gerry Adams was said to have been working on a peace strategy in early 1987, state papers have revealed.
The Sinn Féin president was said to have privately believed that the IRA campaign would not succeed and that terrorism was hampering his own personal ambitions and attempts to win support for the party at the ballot box.
The previously unseen report, released under the 30-year rule from the Department of Foreign Affairs in Dublin, said Mr Adams viewed the armed struggle as a "political liability".
The revelation was passed on to a diplomat by senior Catholic cleric Bishop Cahal Daly who was also said to have spoken with "some vehemence of Adams' deviousness and fundamental untrustworthiness".
The confidential report, dated February 4 1987 and compiled for officials in Iveagh House in Dublin, said, "The Bishop has picked up a rumour that Gerry Adams is currently trying to put together a set of proposals which would enable the Provisional IRA to call a halt to their paramilitary campaign.
"He has reached the view that the "armed struggle" is getting nowhere, that it has become a political liability to Sinn Féin both North and South and that, as long as it continues there is little chance that he will be able to realise his own political ambitions.
"What he is believed to be working on is some form of 'declaration of intent' to withdraw, with however long a timescale, on the part of the British Government.
"If he managed to negotiate something of this kind, the Provisional IRA would be able to lay down their arms without much loss of face, claiming that they had achieved the breakthrough towards which all their efforts had been directed."
Prior to this file being declassified it had been known that as far back as 1982 Mr Adams had contacts with the west Belfast Redemptorist priest, Fr Alec Reid, about a peace strategy.
Fr Reid, who died in 2013, also wrote a letter to Taoiseach Charles Haughey in May 1987 setting out Mr Adams' terms for an IRA ceasefire. It would be another seven years before that cessation arrived.
At the time of the these contacts, and the theory being reported by Bishop Daly, the IRA was actively importing massive hauls of weapons, including from Libya. One of those arsenals was on board the Eksund, including two tonnes of Semtex, when it was seized in a French port in late 1987.
In the file Bishop Daly also revealed that he had refused to meet Mr Adams as president of Sinn Féin and that, despite some "agonising", he decided he would only have discussions with him as a "private individual".
Bishop Daly also said that if Sinn Féin won a Westminster seat for West Belfast that it would be a "tragedy".
The file also contained a report on a meeting Mr Adams had with Belfast lawyer PJ McGrory.
The solicitor told an Irish Government official that the conversation showed the Sinn Féin leader privately disapproved of "individual IRA atrocities" but that he would never say so in public.
Mr McGrory reported Mr Adams as saying,"The Army Council gives me only so much leeway."
The lawyer also claimed that the Sinn Féin leader had the support of "the overwhelming majority of Northern Republicans" and that the reality is that "whatever Adams says, the Provos will eventually do".
Mr McGrory said Mr Adams was looking for the British to give a timescale for withdrawal from Northern Ireland "maybe 25, 40 or even 50 years" and that if he found it acceptable he would be able to sell it to the Provos.
"It might take some time, and there would be a lot of suspicion and scepticism to overcome, but eventually he would carry the Army Council with him," the solicitor was reported as saying.
The documents from the Department of Foreign Affairs can be read in the National Archives under reference 2017/20/17.