Sudan, South Sudan sign deals to restart oil, boost trade - Reuters

The deal, reached after more than three weeks of negotiations, will throw both ailing economies a lifeline and prevent, for now, a resumption of the fighting that broke out along the border in April and nearly led to all-out war.

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

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

South Sudan seceded in July 2011 under an agreement that ended decades of civil war, but the neighbors still deeply distrust each other and have a history of failing to implement past agreements.

The defense ministers of both countries 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, which will provide both ailing economies with dollars. The South in January had shut down its entire output of 350,000 barrels a day after the countries argued about transit fees.

Bashir said it was a "historic moment for building peace" between the former civil war foes.

Faced with the threat of U.N. sanctions and economic collapse, Bashir and Kiir agreed to set up the demilitarized zone.

But the two sides failed to settle the fate of at least five disputed, oil-producing regions along the 1,800 km (1,200 mile) border, despite pressure from the African Union, the United States and other Western powers.

"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 in Addis Ababa.

The two sides also failed to agree on the border region of Abyei, which has symbolic significance to both and is rich in grazing lands.

Kiir, who described the talks as "difficult", thanked Bashir for his cooperation but blamed his northern neighbor for failing to reach a deal on Abyei.

"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.

Details of the AU's proposal were not immediately clear.

The U.N. Security Council had set a September 22 deadline for a broad deal to end hostilities, but that was informally extended until the end of the Addis Ababa summit, which Kiir and Bashir joined five days ago.

The border deal provides for both armies to pull back 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.

But the lack of a permanent solution for the disputed regions will pose future risks to border security. Their fate may have to be settled through international arbitration.

Also indirect talks between Sudan and the rebel Sudan People's Liberation Movement-North (SPLM-N), which is fighting the Sudanese army in two areas bordering South Sudan, failed to make tangible progress.

"Nothing has been achieved," SPLM-N's Yasir Arman said in an interview before the deal was signed, adding that Sudan could have no real border security without involving the SPLM-N.

"We need to be included (in the security talks)," he said.

The SPLM-N is part of an alliance with rebels from the western region of Darfur who want to topple Bashir. Sudan refuses indirect talks and accuses the south of supporting the SPLM-N, which controls some territory on the Sudanese side of the border.

Diplomats say each side supports rebels on the other side.

(Writing by Yara Bayoumy)