It is another step in a growing energy alliance between the two countries which is strongly backed by the United States.

Starting in 2004 Turkey will buy several billion cubic metres of natural gas every year from Azerbaijan's Shah Deniz field under the Caspian Sea.

The deal was signed at the beginning of a five-day visit to Turkey by the Azerbaijani President Haider Aliyev.

Important deal

Mr Aliyev said he hoped the amount of gas could eventually rise to as much as 20 billion cubic metres per year.

It is an important deal for both countries.

Azerbaijan is trying to cash in on the promise of vast energy riches, while Turkey is keen to diversify the sources of its gas supplies to lessen its dependence on Russia.

That is the geo-strategic dream which Turkey cherishes - that it will be the main transit route for oil and gas flowing from the Caspian and central Asia to world markets.

The United States strongly supports the Turkish route, although there is plenty of competition - not least from Russia, which still regards the former Soviet Caspian region as its sphere of influence.

The problem with the long-standing plan to build an oil pipeline from the Caspian to Turkey's Mediterranean coast is that it is an expensive option.

The hope in Ankara is that the new gas pipeline which will emerge from the Shah Deniz deal could follow the same route and help reduce the cost of both projects.