Singapore will not insist on a package deal to resolve all bilateral disputes with Malaysia, in what appears to be an important concession in the prickly relations between the neighbours.
Agreement came during the first visit to Singapore by Abdullah Badawi since he became Malaysia's prime minister at the end of October. The two countries, which were briefly united in the early 1960s, have bickered over territorial claims, the price of water that Malaysia supplies to Singapore, and the use of military airspace, among other issues.
In 2001 Mahathir Mohamad, Mr Abdullah's predecessor, and Lee Kuan Yew, modern Singapore's founding father, agreed to address the issues in a package deal. But differences soon surfaced to block progress, with Singapore insisting that all issues must be resolved together.
Goh Chok Tong, Singapore's prime minister, said the two countries had agreed to discuss several unspecified issues outside of the package deal to prevent negotiations becoming deadlocked. "This is a new approach," said Mr Goh.
"We may have to unscramble the package," said Mr Abdullah. "Some issues can be resolved immediately. We have to think out of the box, we have to find some other ways, some other strategies to resolve our issues."
Analysts have said the two richest countries in south-east Asia, which are bound by close cultural and economic ties, should be co-operating more closely to compete for foreign investments against such regional rivals as China and India.
"We cannot allow these issues to remain unsolved forever and ever," said Mr Abdullah. "It is important for Asean [the Association of South East Asian Nations]."
Mr Abdullah, a former foreign minister, is considered less confrontational than Dr Mahathir and has sought to adopt a more flexible approach to Singapore.
Both countries agreed to work on promoting tourism and education programmes, while co-operating closely on anti-terror measures.
One possible test of the new bilateral approach will be the replacement of a causeway linking Singapore with the Malaysian border city of Johor Bahru by building a new suspension bridge over the Johor Strait that separates the two cities.
As part of the 2001 framework deal, Singapore agreed to a new high bridge, which would allow ships to navigate to Malaysian ports. Access is now blocked by the causeway. But Singapore then refused to start construction until other bilateral issues were resolved. In response, Dr Mahathir in 2002 proposed the construction of a M$1bn (US$264m, €205m, £143m)) curved bridge to replace the Malaysian side of the causeway.
Mr Abdullah has favoured returning to the original idea of a suspension bridge but Singapore's foreign minister last week ruled out the project, repeating demands that a package deal should be concluded first.
Malaysia suspects Singapore is opposed to the project as it would allow easier access to ports in the state of Johor, which is being developed as transport hub to rival Singapore.
Parent site: "Focus on Malaysia"