you sound like your pretty close, and from my experience, things from this point can can go one of two ways. the friendship carries on, and you start to think of eachother as more like brother and sister and so of course nothing romantic happens. or, you could as you say, take things further. if hes doing the whole i love you and touching thing then that sounds likely.
of course the "i love you"s could just be a sign of a great friendship. but equally so he could be just testing the water to guage your response.
i say go for it. VERY slowly. too quick a change could be devastating!