Ethiopia's Deputy Foreign Minister, Tekeda Alemu, has held direct talks in Djibouti with senior representatives of Somalia's Union of Islamic Courts.
Ethiopia says it explained its policy of backing Somalia's transitional government against the Islamists.
Representatives of neighbouring nations also took part, as well as Kenya's ambassador to Somalia.
The two sides have clashed in the past month, with the Islamists pledging to force Ethiopian troops out of Somalia.
However, Ethiopia says it has held several meetings with the Union of Islamic Courts (UIC) to try to resolve their differences.
BBC Africa analyst Martin Plaut says the news of contacts between the two sides is a surprising revelation.
Previously, there have been fears that the sporadic clashes would escalate to all-out war with the Islamists on one side, and Somalia's transitional government on the other side alongside the Ethiopians.
But our correspondent says there has been no indication from Addis Ababa of what message they communicated to the Islamists in Djibouti.
30 Nov 2006: Ethiopia's parliament authorises all legal and necessary steps against any invasion by the UIC
27 Nov 2006: UIC accuse Ethiopian forces of shelling Bandiradley
Oct 2006: Ethiopian's PM says Ethiopia is "technically at war" with the UIC
Sept 2006: Somalia's president survives an assassination attempt
July 2006: Ethiopian troops cross into Somalia
June 2006: UIC takes control of Mogadishu
1996: Ethiopian forces defeat Islamist fighters in Somali town of Luuq
1964 and 1977: Wars fought over Ethiopia's Ogaden region
Last month Ethiopian Prime Minister Meles Zenawi said the Islamists represented a "clear threat" to his country which he said was prepared for conflict following repeated Islamist calls for a holy war.
The UIC, which is reportedly backed by Ethiopia's rival, Eritrea, and now controls much of southern Somalia, has denied claims by Ethiopia and the weak Somali transitional government that it has links to al-Qaeda.
Eritrea has denied having 2,000 soldiers in Somalia in support of the UIC.
The talks come as Somalia's interim government, formed two years ago, edges closer to securing regional and international approval for the deployment of foreign peacekeeping troops in Somalia.
When he came to power, interim President Abdullahi Yusuf asked for foreign troops to bolster his position.
A regional grouping of African states, Igad, has now backed that proposal in principle, with the African Union also offering support. The idea is now being considered by the UN Security Council.
The UIC strongly opposes any foreign presence on Somali soil, as do several members of Igad, including Sudan.
Our correspondent says the talks in Djibouti could be the last opportunity to head off all-out conflict in the Horn of Africa.