Prime Minister Manmohan Singh and his Pakistani counterpart Yousuf Raza Gilani had "very good talks" in Bhutan's capital and agreed that relations between them should be normalised, said Foreign Secretary Nirupama Rao on Thursday.

"The Prime Ministers held very good talks in a free and frank manner. They agreed that cooperation between the two countries is vital for the people of South Asia to realise their destiny," Rao told reporters.

The two leaders decided that the channels of dialogue between the two countries should be kept open to restore "trust and confidence" in the bilateral relationship.

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