North Korea agreed on Sunday to reopen high-level talks with South Korea next week in a major step toward getting their reconciliation process back on track after a nine-month hiatus, a joint statement said.

In another sign that relations between the Koreas may be thawing, North Korea also promised to participate in a regional sports competition being hosted next month by its southern rival.

The joint statement was issued after three days of working-level meetings at a mountain resort in North Korea.

It called for the two sides to hold Cabinet-level talks in Seoul on Aug. 12-14 that will be the first between Korean ministers since November. The talks will focus on more reunions of family members separated by the Korean War, a plan to reconnect a cross-border rail line and joint inter-Korean economic projects in the impoverished North, it said.

Ties deteriorated after President Bush in January called North Korea part of an "axis of evil" nations trying to develop weapons of mass destruction.

The Koreas have held six rounds of Cabinet-level negotiations since their leaders met for the first time in the summer of 2000.

An analyst in Seoul said North Korea's dire economic situation left it no choice but to negotiate with the South, a major source of aid.

"North Korea realizes anew that time is not on its side," said Paek Hak-soon, of the independent Sejong Research Institute. "It needs better ties with South Korea, the United States and Japan to rebuild its decrepit economy."

"It (North Korea) made a few attempts in the past to break out of isolation, but its move this time is significant because it comes in tandem with its efforts to reform its tattered economy," he said.

North Korea has raised some prices and wages, and scaled back its food rationing system, in an effort to revive its centralized economy. The changes are significant because they include some market-based elements.

North Korea has also said it would participate in the 14th Asian Games, to be held in South Korea's southern port city of Busan on Sept. 29-Oct. 14, the joint statement said. The offer is significant because the isolated communist state until now shunned major international sporting events in South Korea, including this year's soccer World Cup.

South Korea will "provide active cooperation and support" for the North Korean delegation taking part in the Busan Games and for a North Korean soccer team that will travel to Seoul in early September for a friendly match, the statement said.

The working-level discussions over the weekend followed an expression of regret by North Korea for a naval clash on June 29 along a disputed sea border that left casualties on both sides.

That conciliatory gesture came in tandem with moves to improve ties with the United States and Japan. During an Asian regional security forum in Brunei last week, Pyongyang agreed to reopen normalization talks with Japan and accept a visit by a U.S. envoy.

In the talks this weekend, South Korea urged the North to apologize clearly and punish those responsible for the sea skirmish, according to pool reports by South Korean journalists. No foreign journalists were allowed to cover the talks.

North Korean officials again offered their regrets but stopped short of an apology Sunday, the pool reports quoted South Korean delegates as saying.

North Korean state media said similar incidents can be avoided only when the disputed border in the Yellow Sea is redrawn.

On Friday, North Korea proposed a meeting between its military and the American-led U.N. Command, which signed the 1953 armistice that ended the Korean War and drew the current sea border. North Korea has never accepted it.

The Koreas were divided in 1945. Today, they share the world's most heavily armed border.