Summit provides an opportunity for Bush and Europe to agree and make up

The European Union and the US embarked on a show of post-Iraq fence-mending yesterday, pressing Iran not to produce nuclear weapons, and jointly vowing to defeat international terrorism. But disputes clearly persisted on a host of economic issues.

"The differences are shrinking," Romano Prodi, President of the EU Commission said after the latest summit at the White House, which ended with two specific agreements to speed extraditions of suspected terrorists and to crack down on illegal trade in materials which could be used for weapons proliferation.

The new accords were being hailed by both sides as proof that wounds are beginning to heal after the bitter row between the Bush administration and several leading European countries over the invasion of Iraq. This time, Iraq was barely mentioned. Instead the focus was on the nuclear ambitions of North Korea and above all Iran.

In both cases, the EU and the US would work together, George Bush said. "Iran has pledged not to produce nuclear weapons, and the entire international community must hold that regime to its commitments," said the President.

US officials spoke of "converging agendas" on the two sides of the Atlantic, and their European counterparts tried to strike a similar upbeat note. "Things have been so bad, they can only get better," said Guenther Burkhardt, the head of the EU mission here. "Both sides realise that they depend on the other so much in terms of trade and investment."

Each side wheeled out its top team. The US delegation, was led by Mr Bush and included Colin Powell, the Secretary of State, and Vice- President Dick Cheney, while the EU was represented by Costas Simitis, Prime Minister of Greece which currently holds the rotating EU presidency, Mr Prodi, and Javier Solana, the EU's chief foreign policy representative.

Even so, they could not bridge wide divisions on economic issues. They range from reciprocal complaints over farm trade subsidies to Europe's criticism of Washington's steel import tariffs.

The US is also intensifying its campaign against Europe's ban on imports of genetically modified food. Washington plans to take the dispute before the World Trade Organisation, claiming its farmers are losing £180m a year.

Meanwhile, Europe is worried by the sharp decline of the dollar, widely perceived as a deliberate "beggar my neighbour" devaluation to increase US exports to Europe.

The two sides also announced plans for negotiations to set up a common aviation market between the US and Europe, with a single overarching "open skies" policy to replace the patchwork of bilateral agreements, although an early deal is very unlikely.