Still, it wasn't clear if Seoul would secure a firm commitment from the North Koreans to return to international arms talks, which Pyongyang has said it will boycott until Washington lifts financial sanctions.

In a joint statement to be adopted at the conclusion of the cabinet-level talks, the two Koreas are expected to "reaffirm their commitment to implementing the 19 September joint statement and actively cooperate for a peaceful resolution of the nuclear issue", the source said, briefing journalists on condition of anonymity.

The North agreed in September to abandon its nuclear programmes in exchange for aid and security guarantees.

Latest row

But implementation of that agreement has slowed since the latest row between the North and Washington over US financial sanctions against the communist nation for alleged illicit activities, including money laundering and counterfeiting.

Last week, North Korea threatened to stay away from the multinational talks on its nuclear weapons programme until Washington lifted the sanctions, which the North claims are based on "sheer lies".

South Korea, Japan, China and Russia, too, are involved in the arms talks.

South Korea had hoped to use their highest-level dialogue channel - the 17th such meeting - with the North to persuade the communist nation back to the nuclear negotiations.

"It looks like the North thinks the US is the cause of the latest stumbling block to the six-party talks," South Korean spokesman Kim Chun-sig said on Thursday. "The North's position is that the nuclear issue should be resolved with the United States."

During dinner on Thursday, Unification Minister Chung Dong-young, who heads the South Korean delegation, stressed cooperation between the two Koreas.

"We can overcome any obstacle if the South and the North understand each other and cooperate," Chung said.

Fresh calls

 North Korea repeated its calls on Thursday for the United States to lift financial sanctions.

"The only way for the Bush group to get rid of its present deplorable position is to lift its financial sanctions against (North Korea) and sincerely work to find a solution to the problem at the six-party talks"

Korean Central News Agency 

"The only way for the Bush group to get rid of its present deplorable position is to lift its financial sanctions against (North Korea) and sincerely work to find a solution to the problem at the six-party talks," the country's official Korean Central News Agency said.

Other key issues being addressed in the inter-Korean talks include South Korean abductees and prisoners of war still believed to be held in the North, and setting a date for inter-Korean military talks.

South Korea estimates 538 soldiers from the war were alive in the North as of December 2004. It also says the North is holding 486 South Korean civilians, mostly fishermen whose boats were seized since the war's end. The North denies holding any war prisoners, saying the civilians defected voluntarily.

North Korea is also demanding that South Korean visitors to the country be allowed to visit politically sensitive places like the birthplace of North Korean leader Kim Jong Il.

The two Koreas remain technically at war since the 1950-53 Korean War, which ended in a cease-fire, not a peace treaty, although exchanges between them have increased since a summit of their leaders in 2000.