For months, pals insisted that Denise Richards and Charlie Sheen, who split this spring while Richards was seven months pregnant, were apart for good. Apparently irreconcilable differences—which is what Richards had cited in her March divorce petition—aren't what they used to be. Since their daughter Lola was born June 1 (older sister Sam is 18 months), Sheen and Richards have been spending increasingly tender time together, including a 65th-birthday party for Sheen's father Martin on Aug. 7, where they shared a loving smooch. Now the actor admits he and Richards could be on the road to reconciliation. "Things are a whole lot better, and I think with that [comes] hope," he told Extra in an interview broadcast Aug. 22. "We're not ruling anything out."

Richards's rep would not comment, but sources close to the couple confirm that Sheen, who turns 40 on Sept. 3, and Richards, 34, are indeed closer than they have been in months. The actress is also sporting a new diamond on her left ring finger. While it looks strikingly like the 4.3-carat engagement ring Sheen gave her in December 2001, it is actually "a recent gift from Charlie," says a source close to the couple, "showing her how much he wants things to work out." Sources say Richards is open to a reunion as well. "She never wanted to get divorced," says one. "She always hoped they could save their marriage." For now, they're still maintaining separate residences: he at their Agoura Hills, Calif., home and she at a new house a few miles away. But Richards, who plays a witchy publicist on the new UPN sudser Sex, Love & Secrets, visited Sheen last week on his Two and a Half Men set, just like old times. "They're taking it one step at a time," says the source. "They're not completely together, but they're trying their best to work it out."

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