Member nations also agreed to invite Afghanistan to join the South Asian Association for Regional Cooperation (SAARC) which already groups Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka.

Set up to alleviate poverty and promote economic cooperation, SAARC has been dismissed by critics as a talking shop that has achieved little in two decades due to mistrust and squabbling between member nations.

But Bangladesh Prime Minister Khaleda Zia said she believed the Dhaka meet would mark a watershed heralding real improvements in the lives of the region's 1.4 billion population.

"Let us assume responsibility to make SAARC a confident instrument of cooperation to our countries and our people's benefit," she said, adding that the summit was declaring the next 10 years the "SAARC decade of poverty alleviation".

"I have every confidence that it will open a new chapter in the history of south Asia," she told the summit's closing session.

Indian Prime Minister Manmohan Singh, whose country will host the next SAARC summit, said the threat poverty posed to regional stability had "rightly been at the centre" of discussions.

"The sheer magnitude of this problem still remains a major concern for us.

"Making a major dent on this problem will require sustained, serious and targeted efforts," he added.

In addition to tackling poverty, the leaders also agreed to set up a disaster preparedness centre in the Indian capital New Delhi following two devastating natural disasters in the region -- December's killer tsunami and last month's Kashmir earthquake.

An agreement was also reached to set up a surveillance centre and rapid response system to deal with a possible bird flu pandemic.

The seven nations further agreed on a range of joint strategies aimed at combating terrorism, according to the summit declaration formally adopted at the closing session.

On the economic front, it was agreed that all negotiations holding up preparations for the South Asian Free Trade Agreement (SAFTA) would be concluded by the end of November.

This would ensure that the free trade area went ahead as originally planned on January 1, 2006.

The deal, if implemented, would create the world's biggest free trade area and is seen as the best hope of raising living standards in South Asia.

A proposal by India for a south Asian open skies agreement that would remove restrictions on flights operated by state-owned and private airlines from seven countries would be examined by SAARC officials.

A deal on the avoidance of double taxation was also signed, the declaration added.

Earlier during the summit, the leaders called for greater cooperation to translate the SAARC ideals into reality.

Pakistan Prime Minister Shaukat Aziz said it was time to recognise the impact of conflict on the region's economies.

"As we look at the 20 years of SAARC, we cannot escape the conclusion that South Asia lags behind its larger Asian neighbourhood in terms of economic and social advancement," he said.

"We have remained embroiled with conflict management. We need to move towards conflict resolution," he said.

For his part, Indian Prime Minister Singh said: "There is an imperative need to change and overcome the divisions of history and politics to forge a new architecture of mutually beneficial economic partnership."

The leaders of the two rival nations met Saturday on the sidelines of the summit to discuss their long-standing dispute over Kashmir and their slow-moving peace process.

The Himalayan region has been split between the nuclear-armed neighbours since independence from Britain in 1947, sparking two of their three wars since then.

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