Chandrika Kumaratunga at the Mahabodhi Temple in Bodh Gaya on Sunday. (AFP)

New Delhi, Nov. 7: India and Sri Lanka today agreed to enter into a defence co-operation agreement and set up a joint working group that will decide on how to deal with the problem of fishermen transgressing into each other?s territorial waters.

India will also actively participate in reviving an airfield at Palaly in northern Sri Lanka?s Jaffna peninsula and overhaul a Sri Lankan naval vessel, the Sayura, a joint statement issued here said. The statement was issued at the end of a five-day official visit of Sri Lankan President Chandrika Kumaratunga.

The Indian Army chief, General N.C. Vij, had visited Sri Lanka just before President Kumaratunga?s arrival in New Delhi.

Official sources said Prime Minister Manmohan Singh was given a briefing by the Sri Lankan delegation on the peace process in the island nation. New Delhi said it will continue with active support to a negotiated settlement ?within the framework of a united Sri Lanka and consistent with democracy and respect for individual rights?.

The two sides agreed that the joint working group on fishing-related issues would seek to work out ways to minimise transgressions into territorial waters with restraint. The group will discuss proposals to license fishing rights.

The Sri Lankan President left for a pilgrimage to Bodh Gaya after meeting President A.P.J. Abdul Kalam, Congress president Sonia Gandhi and defence and external affairs ministers Pranab Mukherjee and K. Natwar Singh and former Prime Minister Atal Bihari Vajpayee.

?The discussions were detailed and substantive in consonance with the close and friendly ties that exist between the two countries,? the official release said.

The two sides resolved to intensify economic and trade ties by negotiating a Comprehensive Economic Partnership Agreement. Since a Free Trade Agreement that was implemented from March 2000, bilateral trade exceeded $1.5 billion in 2003-04, the release noted.

The Sri Lankan government said it will use a $100-million credit line offered by India to build rural roads, set up vocational training institutes, water supply schemes and repair a road between Anuradhapura and Trincomalee that will be named the Rajiv Gandhi Amity Highway.