Sudan, South Sudan sign deals to restart oil, secure border - Reuters

The border deal, reached after three weeks of negotiations in Ethiopia, will throw both ailing economies a lifeline and prevent, for now, a resumption of the fighting that broke out along the frontier in April and came close to war.

Sudan's President Omar Hassan al-Bashir and South Sudan President Salva Kiir signed agreements to boost cooperation and trade to applause in a packed room in a five-star hotel in Addis Ababa, the seat of the African Union (AU).

But both sides, which have a history of signing and then not implementing deals, failed to agree on who owned the central Abyei region and other contested areas.

AU mediator Thabo Mbeki acknowledged he had failed to broker a settlement on those disputes that were left unresolved when the South declared independence in July 2011, under a peace agreement that ended decades of civil war.

"We are convinced that what has happened, which culminated in signing of the agreements, constitutes a giant step forward for both countries," Mbeki said at the signing ceremony.

Both countries' defense ministers signed another deal to set up a demilitarized buffer zone along the joint border.

The deal will allow landlocked South Sudan to resume oil exports though Sudan, a resolution which will provide both economies with dollars. The South had shut down its output of 350,000 barrels a day in January after the countries argued about fees.

Bashir said it was a "historic moment for building peace" between the former civil war foes. "We will continue talking with the same spirit to solve the other problems such as Abyei and the disputed borders," he told the audience.

In the streets of Juba and Khartoum, people said they hoped the oil deal would end their economic woes. "I'm excited. As I go over the news I feel I am impressed because I know our economy is going to come back to us, said Juba-based priest Otenis Mac.

"When oil will flow again it will help the economy," said Muhammad Muafat, a civil servant in Khartoum.

"THE OIL WILL FLOW"

South Sudan's chief oil negotiator said preparations had already begun for the resumption of oil exports. "I believe by the end of the year, the oil will flow," Pagan Amum said.

Kiir, who described the talks as "difficult", thanked Bashir for his cooperation but blamed Sudan for not reaching an Abyei deal.

"As for Abyei, it was very unfortunate that we could not agree. My government and I accepted unconditionally the proposal of the AUHIP (African Union panel) to the resolution of the conflict in Abyei," he told the audience.

"Unfortunately, my brother Bashir and his government totally rejected the proposal in its totality," Kiir said.

Diplomats said the AU proposal was for a referendum on whether Abyei's people wanted to join Sudan or South Sudan. Similar votes have failed in the past because the sides cannot agree on who is qualified to vote.

Under the border deal, the countries agreed to pull back their armies 10 km (6 miles) from the frontier. Special arrangements will be made for a strategic strip of land called Mile-14, which is important to Arab tribes allied to Sudan.

Princeton Lyman, U.S. Special Envoy for Sudan and South Sudan, told Reuters the AU should now concentrate on brokering a ceasefire between Khartoum and SPLM-North rebels, who are fighting in two states on the Sudanese side of the border.

"This has to be a very high priority. If they keep fighting it will be probably hard to secure the borders," he said.

Yasir Arman, one of the SPLM-North leaders, said there had been no progress at indirect talks with Sudan. "Nothing has been achieved," he said, adding that Sudan could have no security without involving the SPLM-North.

The SPLM-North complains of marginalization and is part of an alliance with rebels from the western Darfur region who want to topple Bashir. Sudan accuses South Sudan of supporting the insurgents.

Diplomats say both countries support rebels in each other's territories.

(Additional reporting by Hereward Holland in Juba and Khalid Abdelaziz in Khartoum; Writing by Yara Bayoumy and Ulf Laessing)