Sudan, South Sudan agree once again to set up buffer zone - Reuters

Sudan's Omar Hassan al-Bashir and South Sudan's Salva Kiir had agreed in September to withdraw their armies from the border area, a move both say is necessary to allow oil to flow again from landlocked South Sudan through Sudan.

After weeks of deadly clashes early last year the two came close to all-out war but agreed a ceasefire in April. However, South Sudan says Sudan has bombed its side of the border several times since then and neither has withdrawn its army since the deal was struck in September.

They also accuse each other of supporting rebels on each other's side of the border, accusations denied by both, and part of Sudanese side is controlled by Sudan People's Liberation Movement-North (SPLM-North) rebels.

The AU called this week's summit, two days of talks in Ethiopia, to defuse tensions after months of often unproductive talks between two countries which remain deeply mistrustful of each other, a legacy of one of Africa's longest civil wars.

"They've ... agreed that actions should be taken as soon as possible to implement all the existing agreements unconditionally," AU mediator Thabo Mbeki said after the summit which Bashir and Kiir left without making statements.

"The presidents have also agreed that ... the necessary decisions are taken to create the safe demilitarized border zone," Mbeki told reporters. The AU would present a time frame next week, he said.

The AU, backed by Western powers, had threatened both with sanctions should they miss a September deadline to resolve the dispute and has since then granted more time to negotiate.

Sudan has rejected calls by Western powers and the AU to start peace talks with the SPLM-North, which complains of marginalization and wants to topple Bashir.

Mbeki said Kiir had told the summit that the South had cut any ties with SPLM-North but it was not clear whether this would be sufficient assurance for Sudan. Security officials from both sides will start more talks in Ethiopia on January 13.

Sudan's state news agency SUNA only said both presidents had agreed in the final summit communiqué to implement all existing deals and set up the buffer zone without delay.

South Sudan's Information Minister Barnaba Marial Benjamin could not be reached on his mobile phone.

LONG LIST OF DISPUTES

South Sudan became independent in July 2011 under a 2005 peace agreement which ended decades of civil war and the neighbors have yet to sort out a long list of disputes.

Both economies badly need the oil to flow again from the fields in South Sudan, for which Juba has to pay millions of dollars each month. Juba shut down its entire output of 350,000 barrels a year ago after failing to agree on an export fee.

Diplomats say both sides tend to see such summits as an opportunity to pick away at the other's weaknesses rather than an opportunity to solve their conflicts.

Both use the confrontation to shore up popular support for their governments and to divert attention from their economic problems and widespread corruption.

Mbeki said Bashir and Kiir had agreed to mark the undisputed part of their almost 2,000 km (1,200 miles) long border, a plan both sides have committed to before. An AU panel will make non-binding proposals for other boundaries.

He said both presidents would meet again to decide on a deal for the border region of Abyei, which both claims as theirs.

The AU had demanded a solution for Abyei by September and then said it would make a binding proposal before giving the parties until December 2012 to do a deal.

(Writing by Ulf Laessing; Editing by Louise Ireland)