Indian Prime Minister Manmohan Singh has laid the foundation stone for a new Afghan parliament building in Kabul on the second day of a historic visit.
India is Afghanistan's biggest regional donor
On Sunday, Mr Singh and Afghan president Hamid Karzai inaugurated a school renovated by India.
The two sides pledged to fight against terrorism describing it as a threat against democracy.
Mr Singh is the first Indian prime minister to visit Afghanistan in nearly three decades.
The war-ravaged country is a strategically crucial ally for India which is one of Afghanistan's biggest donors.
On Sunday the two sides said that Afghanistan was seeking closer links with the South Asian Association for Regional Cooperation (Saarc), a grouping of seven South Asian countries.
"Afghanistan is very keen on Saarc and hopes to be a contributor and receiver (from) that organisation," Mr Karzai was quoted by The Hindu newspaper as saying.
Mr Karzai said that he was happy with the ongoing peace process between India and Pakistan.
"Afghanistan is directly affected by the India-Pakistan peace process and I believe that it is the destiny of the people of the region that there is peace and prosperity," he told journalists in Kabul.
"We hope all of us will fight terrorism to remove it from among us," he said.
The BBC's Sanjeev Srivastava in Kabul says Mr Singh has used the visit to emphasise Delhi's commitment towards rebuilding Afghanistan's economy, infrastructure and democratic institutions.
Motives for generosity
India is Afghanistan's biggest donor in the region.
It has spent over $500m in Afghanistan since the overthrow of the Taleban in 2001.
Much of this money has been spent in rebuilding Afghanistan's infrastructure with regular contributions in sectors like education, health care and power.
India has also helped in other areas like transportation, aviation and telecommunications.
Delhi is also involved in the training of Afghanistan's civil servants, diplomats and police officers.
From India's point of view, Afghanistan has great strategic importance.
It is India's gateway to Central Asia - a crucial region in view of Delhi's growing energy requirements.
Correspondents say Delhi is also keen to counter Pakistan's influence in Afghanistan.