Prince William & Kate Middleton: The Secret Dates
06/27/2007 AT 03:05 PM EDT
"It's true that they have been seeing each other," a source tells PEOPLE in its new issue. Adds a pal: "They [never] loathed each other. It just wasn't working at the time."
The couple were spotted at a June 9 bash in William's Dorset, England, army barracks, where the British press reported that they talked all night and kissed on the dance floor.
The prince and Middleton, both 25, began dating five years ago, and many had Middleton, an accessories buyer at the British fashion company Jigsaw, pegged as the future Queen of England.
Both are expected at the July 1 Concert for Diana; Prince Harry, 22 – who is set to return from his army training in Canada – has also invited his girlfriend Chelsy Davy, 21.
Palace reps won't comment on whether Middleton is officially back in William's life, and friends hesitate to say whether the reunion will last in the long term. But a source tells PEOPLE: "The spark is still there."