Iraq, security and climate change were on the agenda as Australian Prime Minister John Howard held talks with ally US President George W Bush.
The two leaders will spend most of the day together in Sydney
At a joint news conference, Mr Howard pledged support for the Iraq mission, while Mr Bush told journalists he saw signs of reconciliation there.
Mr Bush also addressed America's "complex" ties with China and hit out at Burma's military leaders.
The men are meeting in Sydney ahead of an summit of Asia-Pacific leaders.
Top officials from the 21 members of the Asia-Pacific Economic Co-operation (Apec) have been gathering all week amid some of the tightest security the city has ever seen.
The leaders meet on Saturday, but trade and foreign ministers from the member states have begun two days of talks set to focus on economic and security issues.
Mr Bush, who arrived in Australia from Iraq, is due to spend much of the day with Mr Howard.
Early in the day, the two sides signed a deal to upgrade defence ties, under which the US will allow Australia more access to secret military technology.
They also discussed Iraq, with Mr Bush saying: "It's important, in my judgement, for the security of America or for the security of Australia, that we hang in there with the Iraqis and help them," said Bush.
Mr Howard, a staunch ally of the US president, added that Australia remained committed to the mission in Iraq.
"Australian forces will remain at their present levels in Iraq, not based on any calendar but based on conditions on the ground," he said.
The Australian leader is facing a general election by the end of the year.
Polls show him trailing opposition leader Kevin Rudd, who wants to withdraw Australian troops from Iraq. Mr Bush is expected to meet Mr Rudd on Thursday.
The US leader also used the joint news conference to urge Chinese participation in forming global policy on climate change.
"In order for there to be an effective climate change policy, China needs to be at the table," he said.
He said he planned to discuss the issue with Chinese President Hu Jintao in bilateral talks later this week.
But he would not confirm whether he would raise US allegations that the Chinese military hacked into the Pentagon's computer network, describing ties with China as "complex".
He also condemned a recent crackdown by Burma's military leaders on protesters demonstrating against a fuel price rise.
"It's inexcusable that we've got this kind of tyrannical behaviour in Asia," he said.
As the two men met, a two-day closed-door meeting of trade and foreign ministers got under way at a convention centre on Sydney harbour.
Food and product safety, North Korea and efforts to revive global trade talks are expected to be on the agenda.
Security is extremely high for the summit, with security forces braced for violent protests.
A 5km (three-mile) barrier has been erected across the city's central business district and more than 5,000 police and troops are patrolling the streets.