The two Koreas have agreed to hold cabinet-level talks this month, the first on the divided peninsula since November last year.

Among a number of reconciliation projects, North Korea has said it will take part in the Asian Games, which are being held in the South Korean port city of Busan in September.

The agreements were announced in a joint statement following three days of preliminary discussions at North Korea's Mount Kumgang resort - the first contacts between the two sides for four months.

The new dialogue came after a surprise expression of regret from the North for a deadly naval clash in June, in which at least five sailors were killed.

It is a very meaningful agreement for the North to send its athletes to the Busan Asiad

South Korean negotiator Rhee Bong-Jo

On the agenda for the inter-Korean talks will be a North-South railway link and the issue of families separated during the 1950-53 Korean War.

The ministerial meeting will be held in the South Korean capital, Seoul, from 12-14 August.

North Korea's decision to join the Asian Games will mark the first time that the North has taken part in a major sporting event in the South.

The BBC's South Korea correspondent Caroline Gluck says that in the past week, North Korea has signalled that it does want better relations with the outside world, including high-level contacts with the United States, which had labelled the regime as part of an axis of evil, and with Japan.

Call for apology

The agreement to resume talks comes despite a naval clash in late June, in which at least four South Korean sailors and an unknown number of North Koreans died.

South Korea called on the North to apologise for the incident and to punish those responsible.

It is not yet known how North Korean delegates responded to the South's demand, although Pyongyang has already expressed regret for the incident.

North Korea had earlier said that a repeat of such incidents could only be avoided if the demarcation line between the two countries' territorial waters in the Yellow Sea was redrawn.

Three years ago, North Korea declared that the Northern Limit Line drawn by United Nations forces in 1953, at the end of Korean War, was invalid.

But South Korea still adheres to that demarcation line.