Sri Lankan Government negotiators and Tamil rebels have held discussions aimed at finding ways to rebuild the island's war-devastated north.

The head of the government's Peace Secretariat, Bernard Gunetilake, who visited the rebel-held northern town of Kilinochchi to meet rebel representatives described the talks as a success.

He took with him representatives of several private banks, one of them Japanese, who outlined proposals on what they could do to help redevelop the area.

Monday's meeting was part of confidence-building measures being taken ahead of 16 September peace talks between the Liberation Tigers of Tamil Elam (LTTE) and the government.

The LTTE have been running their own administration in areas they control, with an extensive network of officials looking after finance, education and military affairs.

Donors 'ready'

Mr Gunetilake, said the financiers from the National Development trust fund, the National Savings Bank and the Japanese Bank for International Cooperation made a presentation to the rebel leadership with ideas for micro financing and major development activities.

The banking institutes are now waiting for a response from the Tigers who pledged to guarantee the security of any development personnel working on these projects in future.

The LTTE runs its own administration

According to Mr Gunetilake the Tamil Tigers also stressed the need for a peaceful resolution to the conflict and said this particular effort by the government to kick start the devastated economy of the conflict zone was the right kind of step to promote peace.

Mr Gunetilake said the Sri Lankan government had recognised that it could not have peace without development and prosperity - both of which require capital investment.

In another significant move on Sunday, the government decided to meet a key rebel demand by announcing the date on which a current ban on the LTTE would be lifted.

The Associated Press news agency says the peace talks are also expected to cover extending loans to civilians living in the rebel-held areas to boost agriculture, trade and fishing.

The LTTE has been fighting for a separate homeland for the minority Tamils in the north-east of Sri Lanka.

Reports say international donors are ready to help Sri Lanka, especially in developing the shattered infrastructure in the north, but they have been waiting to see peace return to the island first.

Norway mediated a truce between the two sides in February in an effort to end the ethnic conflict that has killed nearly 65,000 people since 1983.