SF leader knew armed struggle had become a political liability
Gerry Adams was said to have been working on a peace strategy in early 1987.
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's 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 (its) 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."
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 in the election, that it would be a "tragedy".