India and the United States have agreed to increase co-operation on civilian nuclear energy programmes.
Mr Bush praised "shared values"
US President George W Bush announced the move after talks with Indian Prime Minister Manmohan Singh in Washington.
The relationship between the two countries "had never been stronger", Mr Bush told a joint news conference.
Mr Singh spoke of the need to ensure "adequate, affordable" energy supplies, backed the US-led war on terrorism and stressed the need for UN reform.
President Bush and he were "of one mind that contemporary reality must be reflected", Mr Singh said, adding that India's case for membership of the Security Council was "compelling".
Mr Bush did not mention India's hopes for a permanent seat on the council. But he referred to new steps in their defence relationship aimed at reaching common security objectives, and outlined areas of collaboration.
"Today, we announce the completion of the next steps in strategic partnership.
"Completing this partnership will help us further enhance our co-operation in the areas of civil nuclear, civil space and high-technology commerce," he told reporters.
Cleaner energy resources, including nuclear power, were vital for the future of both economies and the two sides had begun a dialogue to find ways to "work together in this area", Mr Bush said.
The United States imposed curbs on nuclear technology transfers to India in the wake of India's nuclear tests in 1998.
Delhi wants to strike a deal on ways to share nuclear technology to help meet its growing energy needs.
Washington has been reluctant to relax the curbs because of India's refusal to join international nuclear non-proliferation treaties.
BBC diplomatic correspondent Jonathan Marcus says Mr Singh's visit looks set to cement a relationship that is fast becoming one of the most important alliances in the new diplomatic landscape.
But he says despite the announcement of increased co-operation in civil nuclear matters, it is hard to see how there can be any meaningful transfer of technology unless Washington is willing to drive a coach and horses through its non-proliferation policy.
Following the news conference, the two leaders went on to have talks with business leaders on developing trade and investment.
During his four-day state visit, Mr Singh is also due to meet senior members of Mr Bush's cabinet, including Vice-President Dick Cheney, as well as leading figures from the Indian-American community.
On Tuesday, he will be accorded the rare honour of addressing a joint session of the US Congress.