By Caroline Gluck BBC Seoul correspondent

Officials at South Korea's Unification Ministry were visibly relieved by the apparent progress in dialogue.

The key to the impasse came on Thursday night, when South Korea's presidential envoy, Lim Dong-won, finally met North Korea's reclusive leader, Kim Jong-il.

"We're very happy that North Korea is resuming dialogue", said South Korean Unification Ministry spokesman Kim Jung-ro.

North Korea does want dialogue... But it's difficult to expect any major breakthroughs at this time

Moon Chung-in Professor of political science

"Maintaining dialogue is important for peace."

Much was resting on Mr Lim's visit, because there had been no public contact between the two sides since last November.

South Korean newspapers had suggested this could be a make-or-break visit. President Kim Dae-jung has less than a year left in office, and his successor may not be so active in pushing for exchanges with the North.

Also, South Korean preoccupations will soon switch to the World Cup football finals, which it is co-hosting with Japan.

'Axis of evil'

The meeting took place with North Korean relations with the United States at a low ebb. Pyongyang has accused Washington of adopting a hostile policy.

It was infuriated when President George W Bush labelled the regime part of an "axis of evil", blaming the US for raising tensions on the Korean peninsula.

North Korea wants people to visit for its Arirang festival

There are also fresh concerns of a potential nuclear crisis. Next year marks the end of North Korea's self-imposed missile test moratorium period.

It is also the target date for the completion of two light water reactors due to be built by a US-led international consortium, in return for North Korea freezing its nuclear programme.

But the reactors are not likely to be completed until 2005 at the earliest, leading to fears North Korea may not stick to the agreement.

"North Korea does want dialogue and there's still life in the 'sunshine policy' of engagement", says Moon Chung-in, professor of political science, who accompanied the South Korean president on his ground-breaking trip to Pyongyang for summit talks in June 2000.

"But it's difficult to expect any major breakthroughs at this time.

"What is important is to have incremental agreements, to have confidence-building measures in various areas, so that eventually you can move on to military confidence building measures."

Two-way visits

There is speculation that the two sides may agree to allow reciprocal visits to World Cup matches in the South. South Koreans may also be able to attend a mass gymnastic and artistic display, Arirang, which begins in the north at the end of April.

"North Korea is eager to have many South Koreans visit for its festival", says Professor Suh Dong-man, an expert on North Korea.

"It wants as many tourists as possible so it can earn some money. "

But he also believes that the visit has helped iron out differences on a range of issues.

"I think North Korea is very serious now in its attitude to the talks. Kim Jong-il is determined to weaken the effect of President Bush's "axis of evil" comments.

"But to show the image of peace, North Korea has to have dialogue with the South in order to open relations with the North. South Korea is taking the role of mediator."