In a bid to prevent an accidental nuclear exchange "India and Pakistan have agreed to pre-notify each other before any missile test and have also agreed to set up a hotline between the foreign secretaries," they said.

The two countries conducted tit-for-tat nuclear tests in 1998 and came to the brink a war in 2002. The historical rivals, who have already fought three wars, routinely carry out tests of nuclear-capable missiles.

Indian Foreign Ministry senior official Meera Shankar said both sides had agreed "to operationalize the hotline between the two foreign secretaries" and upgrade an existing military hotline by September.

The Pakistani delegation leader, senior foreign ministry official Tariq Osman Hyder, called the agreement "a step in the right direction".

"It's a good step," he said. "Pakistan and India are nuclear states, living side by side. We have to evolve the modality for confidence building (and) nuclear restraint for resolution of all disputes between us."

The two-day talks in New Delhi form form part of a "composite dialogue" peace process, which India and Pakistan started last January.

They aim to resolve disputes, including the core problem of Kashmir, the Himalayan state claimed by both countries, where an Islamic insurgency on the Indian side has killed tens of thousands of people since 1989.

Next week, negotiators from the two sides are due to meet in New Delhi to discuss other confidence-building measures and ways to expand commercial ties.

A meeting between the two foreign secretaries is likely in October following a possible meeting between Indian Prime Minister Manmohan Singh and Pakistani President Pervez Musharraf on the sidelines of the annual United Nations General Assembly session in September in New York.