The agreement was reached at a meeting between Turkish Foreign Minister Abdullah Gul and his Greek counterpart Petros Molyviatis on the sidelines of the UN General Assembly in New York, the Anatolia news agency reported on Tuesday.

This will be the fourth year in a row the NATO allies have jointly called off the war games.

"In line with our determination to contribute to the present atmosphere of trust and good neighbourly ties between the two countries, we have reached agreement to ... cancel manoeuvres this year as well," a joint statement by the two ministers said.

New terms

"In line with our determination to contribute to the present atmosphere of trust and good neighbourly ties between the two countries, we have reached agreement to ... cancel manoeuvres this year as well"

Turkish Foreign Minister Abdullah Gul and Greek Foreign Minister Petros Molyviatis

Under the deal, Turkey and Greece will give up naval exercises which they usually carry out every autumn in the Eastern Mediterranean.

They will also forgo the annual manoeuvres they hold with the armed forces of their respective communities on the divided island.

Strained ties between neighbouring Greece and Turkey have improved significantly since 1999, when the two countries rushed to each other's aid after devastating earthquakes in both countries.

They remain at loggerheads, however, over territorial and air control rights in the Aegean Sea, which separates the two countries.

Improved bilateral ties with Greece, a European Union member, is of particular importance to EU candidate Turkey as it awaits a crucial decision from Brussels on whether it will be given a date to start full membership talks.