Iran's leader Mahmoud Ahmadinejad has promised $1bn (£493m) to help Bolivia exploit oil and gas reserves.
The two presidents formally established diplomatic relations
Mr Ahmadinejad made the pledge to his Bolivian counterpart, Evo Morales, during a brief visit there - part of a mini-tour to Latin American nations.
Mr Morales said their two countries would "work together from this day on".
Mr Ahmadinejad later flew to Venezuela to meet President Hugo Chavez, his main ally in Latin America. He will also visit Ecuador and Nicaragua.
The tour follows his address to the UN General Assembly in New York.
Mr Ahmadinejad's visit to Bolivia lasted only five hours.
At the meeting, the two presidents formally re-established diplomatic relations between their countries and agreed to design a five-year industrial co-operation accord with a $1bn investment.
Mr Morales's spokesman, Alex Contreras, said they also agreed to spend up to $100m (£49m) on technology, trade and industrial promotion.
Afterwards, Mr Ahmadinejad called the Bolivian leader his "dear brother" and said the trip was "the start of a deep relationship between both governments".
"We'll get rid of the poverty in our lands and give well-being to our peoples, and the people of Bolivia and the people of Iran will emerge victoriously," he said.
Mr Morales responded with a promise that their nations would "work together from this day on, for our people, for life and for humanity".
He also dismissed concerns expressed by Bolivia's opposition groups that the country should not have welcomed the president of what they call a state that promotes terrorism.
"Bolivia has the right to have diplomatic relations with Latin America, Europe, Africa, and the Middle East. We will never promote war... but nor do we accept that in the name of peace, the criteria of the strongest prevails," he said, seemingly referring to Washington, which made its displeasure known.
The BBC's South America correspondent, Daniel Schweimler, says Iran is keen to develop alliances with countries that have shown their independence from the influence of the US.
Reports suggest Mr Ahmadinejad was also interested in the Andean nation's reserves of uranium for use in Iran's nuclear industry, our correspondent says.