By Andrew Hammond
UPDATE 1: Gulf states agree to fix borders, could unlock gas projects.
Gulf neighbours Saudi Arabia and Qatar are to demarcate their border and set up a joint council to develop relations after years of tension, the official Saudi Press Agency reported on Sunday.
The decision was taken after two successive visits last week to Jeddah on the Red Sea by Qatari Prime Minister and Foreign Minister Sheikh Hamad bin Jassem bin Jabr Al-Thani, it said.
The move is a further step towards normalising relations between the two members of the six-nation Gulf Cooperation Council (GCC).
In 1992 differences over the frontier sparked an armed clash at a border post that killed two people. The incident prompted the creation of a joint committee aimed at solving the dispute, but little progress was made.
Ten years later Riyadh withdrew its ambassador from Qatar in 2002 amid fury at criticism of the Saudi royal family aired in a talk show by the Doha-based television channel Al-Jazeera.
In March, gas-rich Qatar and oil powerhouse Saudi Arabia sealed a thaw in ties when Saudi crown prince Sultan bin Abdul Aziz visited Doha.
Although Saudi King Abdullah had attended a Gulf regional summit in Doha in December last year, Sultan's trip was the first by a Saudi leader since 2002.
SPA reported that the joint coordination council to oversee relations would be co-chaired by the Saudi and Qatari crown princes.
It said the council would develop "bilateral relations in the political, security, financial, economic, trade, investment, cultural and information domains".
The move to fix their borders, including sea border, could affect gas pipeline projects in the Gulf region.
In 2006 Saudi Arabia was reported to have raised objections to a $3.5 billion gas pipeline project led by the UAE's Dolphin Energy to supply Qatari gas to the UAE, sending letters to minority partners France's Total and US Occidental questioning the pipeline's route.
In 2005 Saudi media said Riyadh had protested to Qatar and the UAE over plans to build a bridge linking their two states, saying it would pass through Saudi territorial waters.
A gas pipeline project between Kuwait and Qatar had already been scrapped over Saudi objections.