Ethiopia's prime minister says he is strengthening his army in preparation for an attack by long-time foe Eritrea.
Ethiopia is strengthening its defence every day, Mr Meles said
"Our defence forces have the capacity to deter aggression and to repulse it if it occurred," Meles Zenawi told MPs.
An Eritrean minister said Mr Meles was "paranoid" and trying to divert attention from his domestic problems. He denied backing Ethiopian rebels.
The two neighbours fought a border war from 1998-2000, in which hundreds of thousands of people were killed.
They back rival sides in Somalia and there had been fears that they could clash there through local proxies.
Mr Meles also accused Eritrea of backing its rebel groups, in particular in Ethiopia's Somali region.
United Nations peacekeepers are monitoring a buffer zone along the border but Ethiopia has long accused Eritrean troops of infiltrating the zone.
Under the deal to end their war, an independent boundary commission ruled on where the countries' border should lie in 2002.
It awarded the town of Badme to Eritrea but Ethiopia has not handed it over.
Mr Meles told parliament that he did not agree with the border ruling but said he accepted it.
"We believe the ruling was wrong, we still believe it is wrong, but we accept the ruling even though it is wrong."
He said he was ready to hold talks with Eritrea about implementing the ruling but Eritrea says there is nothing to talk about - Ethiopia should just withdraw from Badme.
Eritrean Information Minister Ali Abdu said Mr Meles' comments were another attempt to delay implementation of the boundary commission's ruling.
Eritrea wants the international community to put more pressure on Ethiopia to comply with the ruling.
In November 2006, the commission gave the rivals a year to physically demarcate their border or risk having it set for them.