By Elizabeth Blunt BBC analyst

The naval clash between North and South Korean warships off the western coast of the Korean peninsula comes as a blow to the Sunshine Policy of South Korea's President Kim-Dae Jung.

It is the latest in a series of incidents near the sea border between the two Koreas, which have continued despite the diplomatic thaw between them.

It is 50 years since the Korean war - and yet the two countries still are not officially at peace.

There never was a peace treaty to conclude the war and the land border is still sealed and heavily guarded.

Counter-accusations

The sea border is less clearly marked and incidents erupt from time to time.

The area where the latest clash took place is a rich fishing ground, particularly noted for its crab fisheries, so there is all the more temptation for boats to stray across.

Kim Jong-il's presidency in has seen a thaw in relations

Usually, these incidents just stop at accusations and counter-accusations about whose ships crossed into whose waters.

But there has been a similar gun battle to Saturday's on one previous occasion, in 1999.

Then, a North Korean naval ship was sunk and a number of its crew are believed to have died.

There are also regular accusations of spying between the two Koreas - including underwater espionage.

South Korea has caught North Korean mini-submarines in its waters and the bodies of North Korean frogmen have been washed ashore in the south.

Yet despite all this, the two governments have made unprecedented steps towards better relations.

Isolated regime

The breakthrough came after the death of North Korea's long-serving leader, Kim Il-Sung.

He had turned his country into one of the most isolated in the world and was succeeded by his son, Kim Jong-il.

An anti-American march in North Korea

With the South Korean President Kim Dae-jung pushing hard for dialogue, the first tentative steps were made.

There has been one set-piece meeting between the two presidents.

A limited number of family reunions between elderly relatives living on opposite sides of the border have taken place.

These civilian contacts were seen as confidence-building measures which might in time lead to similar measures at a military level.

But this has not happened yet.

Even the civilian exchanges were halted for a time last year.

Things got worse when American President George Bush named North Korea as part of the 'axis of evil', along with other states which the US believes has weapons of mass destruction, and the South Korean Government got the blame for what its American ally had said.

President Kim Dae-Jung is already facing criticism in South Korea for having given too much in pursuing his Sunshine Policy - and having got too little.

Two of his sons are facing corruption charges, his time as president is fast running out and only Korea's astonishing run of success in the football World Cup has broken the spell of bad news for his party's election campaign.