It is the first time in 20 years such a meeting has taken place in Tibet itself.
Analysts say it may be a prelude to the re-opening of formal contacts between Beijing and the Dalai Lama.
The chairman of Tibet's regional government, Leg Qog, said he spoke for an hour on Sunday with Lodi Gyari, a leader of the Tibetan Exile Movement, which contests China's right to rule Tibet.
The BBC's Adam Brookes, in Lhasa, says China appears to be softening its stance on the Tibet question.
There seems to be a new willingness in Beijing to explore the renewal of formal contacts with the Dalai Lama, which were severed in 1993.
Leg Qog told journalists that he and Mr Gyari discussed the economic development of Tibet over 50 years of Chinese rule, and little else.
He played down the significance of the meeting, saying Mr Gyari was in Tibet to see Buddhist monasteries and visit relatives.
Visit welcome
But Leg Qog then went on to say that the Dalai Lama himself was welcome to visit Tibet - on two main conditions.
"He must be patriotic, he must come as a Chinese citizen and he must do nothing that would break up the Chinese state," he said.
These conditions are not new, but his statement of them sounded as if China was staking out a negotiating position.
The Dalai Lama has called for Tibetan autonomy within Chinese borders.
Despite China's playing down this visit, hopes are now rising among Tibetan exiles and activists that these meetings could lead to a renewal of negotiations on the Tibet question - perhaps even a visit by the Dalai Lama to his homeland.
There are reasons for caution too: China's President Jiang Zemin is due to visit the United States in October and to meet President Bush.
Diplomatic move
The political status of Tibet and the human rights situation there are an irritant in the relationship between the US and China, and the appearance of movement on these issues may be designed simply to ease President Jiang's path in America.
Nonetheless, China has released six Tibetan prisoners, charged with political crimes, this year.
A flurry of behind-the-scenes unofficial diplomacy has taken place between Beijing and Dharamsala and the foreign media are enjoying unprecedented, if still controlled, access to Tibet.
Our correspondent says that, added together these things suggest a policy shift in Beijing, though the aims of China's leaders are not yet clear.