Mr Karzai blames Pakistan's spy agency for the Indian embassy attack
India has announced an additional $450m aid to Afghanistan for development projects in the country.
Earlier, India had pledged $750m to rebuild Afghanistan's infrastructure.
The announcement was made by Indian PM Manmohan Singh at the end of his talks with Afghan President Hamid Karzai.
President Karzai is on a two-day visit to the Indian capital, Delhi.
India is one of Kabul's leading donors and a close ally of Afghanistan.
Bilateral trade has grown rapidly, reaching $225m in 2006-2007.
Mr Singh and President Karzai also discussed the security of Indians working in Afghanistan.
Mr Singh said the recent bomb attack on the Indian embassy in Kabul was an assault on Indo-Afghan relations.
The attack killed more than 50 people.
'Attack on friendship'
"Terrorism has no barrier, it is not bound by any restraint. It was an attack on the friendship between India and Afghanistan," he said.
Officials from India and Afghanistan have publicly accused elements in Pakistan's Inter-Services Intelligence (ISI) of involvement in the attack. Pakistan has denied that its spy agency was involved in the bombing.
Over the weekend, Mr Singh raised the issue with Pakistani Prime Minister Syed Yousuf Raza Gilani in Colombo on the sidelines of the regional Saarc summit.
Mr Gilani has offered to investigate the attack, India's foreign secretary said.
Several thousand Indians are engaged in development work in Afghanistan, and the Indian government has been planning to beef up their security.