Prime ministers from the two Koreas met on Wednesday for the first time in 15 years to discuss details of a massive aid package to help rebuild the impoverished North's infrastructure.
The meeting will help implement an agreement reached at a summit held some six weeks ago between the leaders of the two states separated since the end of World War Two, officials said.
The discussions between South Korean Prime Minister Han Duck-soo and the North's Kim Yong-il, the latter seen by analysts as an advocate of economic reform, will focus on developing a North Korean port, shipyards and antiquated roads and railways.
We are here having our first meeting to undertake the dignified wishes of the North-South leaders, North Korean premier Kim said just before starting the first formal session.
The projects could be worth billions of dollars, according to estimates compiled by economists in the South.
The meeting comes as North Korea has started to roll back its nuclear arms program in a separate deal.
The inter-Korean aid may be difficult to implement because of the paranoid North's fear of opening up, while many in the South have criticized the government for giving away too much to the North for too little in return.
North Korea has a clear determination of how to proceed with several of the issues, the South's Unification Minister Lee Jae-joung said after the first round of talks ended.
The meeting, held at a Seoul hotel known for its casino and circus shows, will also focus on developing a joint fishing zone off the west coast in disputed waters and pushing for a peace deal for the peninsula. It is the highest level contact between the two Koreas to take place in the South since 1992.
The summit between North Korean leader Kim Jong-il and President Roh Moo-hyun was held in Pyongyang.
Though neither prime minister wields much political power, they are seen as proxies for their leaders.
South Korea, fearful a collapse of its communist neighbor would ruin its own economy, has been working to develop the North to soften the blow of unification.
The North Korean premier and a delegation of around 40 others flew on one of his country's ageing passenger planes for the short journey to Seoul.
The two sides were all smiles when they first greeted one another at the airport and at a meeting later in the well-heated hotel where the North Koreans sat, still wearing heavy overcoats.
Outside, about 50 protesters burned North Korean flags and carried signs reading: Down with Kim Jong-il.
Defense ministers from the two Koreas will meet later this month in the North Korean capital to discuss ways to decrease tension along one of the world's most heavily armed borders.
On Tuesday, Roh called for a meeting with the leaders of the United States, North Korea and China to help conclude a peace treaty to replace the armistice that ended the 1950-1053 Korean War, adding the summit would help nuclear disarmament.
U.S. President George W. Bush and China's ambassador to South Korea have said a peace treaty cannot be reached until North Korea abandons its nuclear weapons program.