President George W Bush has described as "interesting" a proposal by Russia's president for resolving the row over the planned US missile defence shield.
Vladimir Putin said their two countries could use a radar system in Azerbaijan to develop a shield covering all of Europe, during talks at the G8 summit.
Mr Putin said the base could detect incoming missiles from so-called rogue states aimed at Europe or the US.
Russia has been critical of US plans to extend the shield into central Europe.
Mr Putin has repeatedly scoffed at US claims the defence shield is targeting rogue states, and has said Moscow may in response aim its missiles at Europe.
'Common work'
But after the meeting on the fringes of the summit in Germany, the Russian leader said the threat to re-target Russian missiles could be withdrawn if Washington agreed to use the former Soviet radar base at Qabala in Azerbaijan.
"This will make it possible for us not to change our stance on the targeting of our missiles"
"This will make it possible for us not to change our stance on the targeting of our missiles," Mr Putin said. "On the contrary, this will create the necessary grounds for common work."
"This work should be multi-faceted with the engagement of the states concerned in Europe."
Mr Putin added that if Washington and Moscow co-operated transparently on missile defence, "then we will have no problems".
Mr Bush said his Russian counterpart had presented some interesting suggestions and that they would discuss the issue further during two days of talks beginning on 1 July in Kennebunkport, Maine.
"We both agreed to have a strategic dialogue," he said.
"This is a serious issue."
Mr Bush's national security adviser, Stephen Hadley, said the Russian proposal was a "positive development".
He said it showed President Putin acknowledged the potential threat from rogue states and that officials from Russia and the US would sit down in the future to discuss the development of the shield.
"Let's let our experts have a look at it," Mr Hadley told reporters.
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