Pakistan and India have agreed to double the number of weekly passenger flights between the two countries.
Indian Airlines currently flies between Delhi and Lahore
The two countries also agreed to expand the number of destinations served by the flights and to allow more airlines to operate the routes.
Currently a total of 12 flights a week link the Indian cities of Delhi and Mumbai with the Pakistani cities of Lahore and Karachi respectively.
The deal is seen as a sign of warming ties between the nuclear-armed rivals.
In a joint statement released after the deal was signed in Islamabad, the two countries said they hoped the agreement would facilitate "people to people contact, business and trade activities".
At present, only one airline from each country - Indian Airlines and Pakistan International Airways - is allowed to fly between the four cities.
The deal agreed on Friday would enable each side to designate up to three airlines for all the routes.
The number of routes will itself be increased to include the Pakistani capital of Islamabad and the southern Indian city of Madras (Chennai).
The deal will pave the way for direct flights between the capitals of both countries.
A peace process initiated in 2003 placed great emphasis on the need to improve transport links between the two neighbours.
The modern nations of India and Pakistan were created in 1947 in a bloody partition of the vast colony of British India.
Many families were split between the two countries.
Their attempts at re-union were hampered by decades of hostility between the two governments.
India and Pakistan have gone to war three times, twice over the disputed territory of Indian-administered Kashmir.
Peace moves between the two countries have focused on shared security concerns and on improving trade and cultural ties.