The presidents asked a coalition of countries to set the new border

The accord is expected to pave the way for $3 billion in investment in oil, power, roads and other projects in the impoverished border area.

It will also allow Peru and Ecuador, two of South America's poorest nations, to save hundreds of millions of dollars each year in defence spending.

Peter Stevens reports from the treaty signing in Brasilia

President Jamil Mahuad of Ecuador fought back tears as he said: "After so many decades of each side trying to win the wars, today the two countries together are winning peace."

The ceremony in the Brazilian capital, Brasilia, was witnessed by foreign digitaries including King Juan Carlos of Spain, the presidents of Argentina, Brazil and Chile, and officials from the United States and the Vatican.

The treaty establishes the frontier along the summit of the Condor mountains in a remote Amazonian region.

President Alberto Fujimori points out the jungle territory

It also allows Ecuador to have the use of a square kilometre of territory around a disputed military outpost at Tiwinzta, the scene of fighting between Ecuadorean and Peruvian troops in 1995.

United Nations Secretary-General Kofi Annan "warmly welcomed" the agreement and commended Argentina, Brazil, Chile and the US for "their invaluable role'' in brokering the deal.

President Bill Clinton added: "This signing marks the end of the last and longest running source of armed international conflict in the Western hemisphere."

The Inter-American Development Bank has already promised to loan Peru and Ecuador $500 million for cross-border projects in the wake of the deal.

Thomas McLarty, head of the US delegation at the border talks, said peace was essential to South America's economic recovery.

"You clearly cannot have long-term growth and prosperity involving foreign investment without stability," he added.

Dozens killed in border clashes

The 80km-long stretch of Amazon jungle has been the subject of extensive talks in the past.

In Peru demonstrations have taken place in towns and cities

About 80 soldiers were killed when Peru and Ecuador clashed in the region in 1995.

Tensions were high again in August when troops were just 40 metres apart.

That intensified diplomatic efforts to end the dispute, which traces its roots to the period when South America kicked out Spain.

In October, Mr Mahuad and his Peruvian counterpart Alberto Fujimori asked Argentina, Brazil, Chile and the US to impose a settlement.

The coalition set the border along the peaks of the Condor mountain range, confirming Peru's historical claims, and also decided to grant Ecuador rights over the area called Tiwinzta.

Tiwintza is a highly emotional symbol to Ecuador because its troops defended it successfully against assaults by Peruvian troops during their last border war.

Three dead in protests over deal

But there have been protests in both countries against the surrender of sovereign territory.

In northern Peru four people have been killed in demonstrations.

There has also been disappointment in Ecuador that the majority of territorial claims have been denied.