Officials from the two sides said during the visit to Tehran of Saudi Arabian Interior Minister Prince Nayef ibn Abd al-Aziz as-Saud, starting today, Sunday, agreement on fighting drug-trafficking, terrorism, organised crimes, money laundering and illegal immigration, as well as surveillance of borders and territorial waters will be signed.

"It took Iran and Saudi Arabia two years to negotiate the agreement", Iranian deputy Interior Minister Mohammad-Javad Haqshenas told the official Iranian news agency IRNA.

Informed sources said Iran has also agreed to a Saudi condition aimed at harbouring Saudi "wanted" dissidents without informing authorities in Riyadh.

Answering journalists before his departure for Tehran, the Minister also denied – nor confirmed – Iranian implication in the explosion. "We don’t care what the others say. As far as we are concerned, we say investigations are not finished", he reiterated.

But the Saudis refused to confirm the claim.

Prince Nayef, who leads a high-ranking 130-member politico-economic delegation that comprises some 35 journalists, was welcomed on his arrival to Tehran by his Iranian counterpart Hojjatoleslam Abdolvahed Mousavi-Lari.

He said the agreement he is expected to sign in the Iranian capital was "similar to the ones we have signed with all Arab and Muslim nations and with other countries", he told reporters, cutting short on speculation that the agreements covers military or intelligence fields.

Iran, a staunch contender to the American military presence in the Persian Gulf, is keen to forge close defence ties with Persian Gulf Arab nations by persuading them to enter a regional security pact aimed at keeping all foreign forces outside the waterway.

But Saudi Arabia and other members of the Persian Gulf Co-operation Council (GCC) that includes all the Arab states south of the Persian Gulf are, for their part, linked with the United States and Britain and France to a lesser degree.

However, Iranian and Arab observers agreed that the Prince’s four-day visit, which take place at the invitation of Mr. Mousavi-Lari, will be a major step towards further strengthening of Tehran-Riyadh co-operation.

Nevertheless, relations between Tehran and Washington would also be examined in the talks between Iranian and Saudi officials, analysts said, pointing to efforts made by Saudi Arabia, the United States major ally in the region, to bring the two sides to negotiation table.

The Saudi Minister described the accord he is expected to sign with the Iranians as having a "positive impact" on the security and economy in the Persian Gulf.

Saudi Arabia and Iran, both major oil producers and regional powerhouses, "are serious about achieving security in the region, realising mutual respect, respect for each other's security, serving the citizens of both countries and ensuring their safety," he added.

"Inking of the pact will have a positive impact on regional security and stability based on mutual respect and economic activities", said Dr Alireza Noorizadeh, an independent Iranian journalist based in London.

Following the incident, Grand Ayatollah Ruhollah Khomeini called on Muslim nation to overthrow the Saudi regime and internationalisation of Muslim holy places in that country, denouncing the Saudi rulers as "traitors".

Resumed in 1991, relations warmed remarkably after the victory of Hojjatoleslam Mohammad Khatami in 1997 and following the visit to Tehran by Amir Abdollah, the Saudi Crown Prince when Iran took over the presidency of the Organisation of Islamic Conference on December 1997.

Co-operation between the major oil producers in the Organisation of Petroleum Exporting Countries (OPEC) led to firming up dwindling oil prices, up from a down of 10 US Dollars per barrel to over 25 USD.

Arab diplomatic sources said UAE urges Saudi officials to link any security accord with Teheran to Iran's accepting to solve the dispute over the islands through international mediation.

Iran, on the other, insist that the islands, Abou Mousa, the only one that is inhabited and where Iran has huge military base and the Great and Small Tumbs are integral part of its territory and their status are not negotiable.

The sources said the Saudis have assured their junior partner at the GCC that the accord with Teheran would not affect regional security and would not result in any change in Saudi policy.

"The agreement (to be signed in Tehran) has nothing to do with the Iran-UAE conflict", Prince Nayef, who is a brother of King Fahd, pointed out.

The dispute is a bone in Iran-Arab relations, as both the GCC and the Arab league routinely supports the UAE’s claim on the islands, triggering stern reactions from Tehran.