The two leaders met at a South Asian regional summit in Sri Lanka following Afghan and Indian accusations that Pakistan's intelligence agency had been involved in a bomb attack on the Indian embassy in Kabul last month that killed nearly sixty people.

Pakistan has denied spies from its intelligence agency, the ISI, were involved.

Pakistan's prime minister, Yusaf Raza Gilani, described his meeting with Afghanistan's president, Hamid Karzai, as successful and cordial.

But there are tensions at this summit over the bombing of India's embassy in Kabul last month.

The strained relations between member countries have overshadowed the SAARC summit, but talks have continued at Sri Lanka's parliament where the leaders have been on retreat and have put the finishing touches to a declaration.

SAARC leaders adopted a regional anti-terrorism co-operation agreement and approved the establishment of a food bank to cope with regional shortages. They also signed SAARC Development Fund.

President Mahinda Rajapakse addressing the summit said terrorism has become a great menance throughout the world including South Asia.

He said South Asia could not progress unless there is stability and security in the region.

"It is in that reality that the leaders have signed the legal co-operation pact aimed at combatting terrorsim",President Rajapakse added.