The thaw in relations between South Asia's nuclear rivals gathered momentum at a regional summit in Pakistan.
The two leaders have been reluctant to meet for talks
The Indian and Pakistani prime ministers held their first direct talks for more than two years.
After their meeting, on the sidelines of the summit in Islamabad, India's PM Atal Behari Vajpayee asked to see Pakistani President Pervez Musharraf.
It is not known what the prime ministers discussed, but analysts said the meeting was a breakthrough.
The summit of the South Asian Association for Regional Co-operation or Saarc had been delayed because of tensions between the two countries.
Mr Vajpayee and the Pakistan Prime Minister Zafarullah Khan Jamali held talks for around 30 minutes, half of which was in private.
Mr Vajpayee had indicated he would not discuss flashpoint issues like Kashmir in any meetings with Pakistani leaders before the talks took place.
Before he left for Pakistan, the Indian prime minister had said he would not hold talks with President Musharraf. Now he is seeking to pay a "courtesy call" on Monday.
The BBC's Zafar Abbas in Islamabad says the three-day summit brings together leaders from a region faced with deep social and economic problems.
Tens of millions people live below the poverty line, literacy is low and internal conflicts have continued to hamper progress.
Although Saarc has made little difference in the region there are signs things may be changing, our correspondent says.
The seven member states have agreed to create a free trade zone and to increase co-operation.
The agreement will take effect from 1 January, 2006 in Saarc member states, Pakistani commerce ministry spokesman Zafar Qadir said.
Each member state would be permitted to nominate "sensitive" products on which tariffs would not be reduced.
Ahead of the Islamabad summit, ministers also reportedly agreed on measures to combat terrorism and on a social charter which would try to raise living standards in South Asia and improve access to government.
But co-operation between members is largely dependent on improved relations between India and Pakistan, our correspondent says.
Although there has been a visible thaw in relations in recent months, so far the two countries have failed to start formal talks.
Security has been tightened for the summit
Observers say without such a bilateral meeting doubts will always remain on the effectiveness of the South Asian grouping and the agreements its leaders plan to sign.
This is despite a huge opportunity for larger flows of trade between India and Pakistan.
The summit was last held in January 2002 in Nepal.