Saudi Arabia's King Abdullah has held talks with Indian Prime Minister Manmohan Singh during his landmark visit to India.
King Abdullah is the first Saudi monarch to visit in 51 years
The two sides have agreed to combat terrorism and promote investment, the Press Trust of India reports.
King Abdullah is the first Saudi king to visit India in 51 years and will be the guest of honour at Republic Day celebrations on Thursday.
His visit is seen as very significant with both countries keen to build ties.
India's growing economy is fuelling greater energy needs and Saudi Arabia supplies a quarter of its oil.
"I consider myself to be in my second homeland," King Abdullah said soon after his arrival.
"The relationship between India and the Kingdom of Saudi Arabia is an historic one, we have been old friends and, God willing, this visit will renew these historic ties."
The king arrived in the Indian capital, Delhi, late on Tuesday and was personally received at the airport by the Indian prime minister, a rare honour.
For nearly half a century, India and Saudi Arabia were on opposite sides of the Cold War divide.
Delhi saw the kingdom as close to long-time rival Pakistan and was also suspicious of its support for radical Islamic groups.
Saudi Arabia never approved of India's relationship with Moscow or its failure to condemn the Soviet invasion of Afghanistan.
Ahead of the visit, Saudi Arabia granted clemency to an Indian man who was to have lost an eye as punishment for attacking a Saudi man in 2003.
Puthan Vettil Abdul Latif Naushad was convicted of damaging the eye of a Saudi man during a scuffle.
The case received wide attention in the Indian media and the Indian government took up the case with the Saudi government.
The Saudi king has also offered to pay for the repair of one of the country's leading mosques, the Jama Masjid (Grand Mosque) in Delhi.
The 17th century mosque, built by Mughal emperor Shah Jahan who also built the Taj Mahal, is in urgent need of repair.
Indian media reports also said that the king wants to fund education in India.
Both offers are said to have raised concerns with Indian security agencies who are said to fear that the money could be used to preach radical Islam, the Times of India reported.