This overall agreement will cover all outstanding issues, including those on co-operation and sovereignty

UK-Spanish statement

In a joint statement, the UK and Spanish ministers said they would work towards a comprehensive agreement by summer 2002.

"This overall agreement will cover all outstanding issues, including those on co-operation and sovereignty," the statement said.

As part of the process, Spain has agreed to boost the number of telephone lines to the Rock, and to improve health services.

Mr Straw insists that no change to the status of the Rock - currently a British dependent territory - will take place without the agreement of its people in a referendum.

Sovereignty claim

But Mr Pique has reiterated that his country will never renounce its claim of sovereignty - whatever the referendum results.

There has been much speculation that a deal on joint sovereignty could be in the pipeline.

BBC Europe correspondent Justin Webb says the Gibraltarians are likely to vote against any change to the Rock's current status, and that this would cause huge disappointment in Spain.

Mr Straw, who met some of the Gibraltarians protesting in Barcelona, said after the talks that he was acting in their best interests.

We reckon it is a sell-out - Blair is too friendly with the Spanish prime minister, and he is trying to get rid of this Gibraltar problem

Gibraltar resident

"My over-riding interest is the interests of the people of Gibraltar - for a secure future where Gibraltar enjoys greater self-government and a stable and prosperous future," Mr Straw told a news conference.

Both ministers urged Mr Caruana to join the talks process.

Gibraltar has been in British hands since it was seized from Spain in 1704.

Its 30,000 residents are overwhelmingly in favour of maintaining the status quo on sovereignty.