Under the treaty, the two countries will create a High Council consisting of their presidents, prime ministers and parliamentary speakers - although it is not clear what powers this body will have.

The agreement also proposes the eventual merger of the two countries' currencies, but does not set any time frame.

The BBC's Moscow correspondent, Andrew Harding, said although the treaty went further than previous documents, it was too early to say if it would prove to be significant - earlier agreements had been all but worthless.

He said Russia was somewhat cautious about the union as it was concerned about the authoritarian regime in Belarus, and the cost of integration with the economically weak nation.

'Epoch-making'

Mr Yeltsin, who had been forced to cancel last month's scheduled signing ceremony because of illness - said that the agreement was "epoch-making".

"Our countries are entering the 21st century in a new form. This step towards unity is dictated by our joint history, by the logic of our development and also by the worldwide trends towards integration," he said.

"We do not intend to isolate ourselves. Our union is open for others to join. Our intentions are noble: we wish to cooperate honestly and to work together for the happiness and prosperity of all people in Russia and Belarus, and for a peaceful and civilized life for our citizens," President Yeltsin said.

He also alluded to tensions with the United States over the military campaign in Chechnya.

"The union state is based on the sovereignty and independence of member nations and isn't directed against anyone, even Clinton."

Earlier this week, President Bill Clinton strongly criticised the Chechnya campaign.

President Lukashenko said that Moscow could count on Belarus' loyalty.

"You have a reliable, strong friend to the west which has never betrayed the Russians.

"The agreement we signed is only the beginning of the creation of a united state."

Mr Yeltsin is flying to Beijing for informal talks with the Chinese president, Jiang Zemin.