June 24 (Bloomberg) -- The U.S. and North Korea held one-on- one talks on the second day of six-nation discussions in Beijing aimed at resolving a 20-month dispute over the communist nation's nuclear weapons program. Japan offered fuel aid in return for a freeze on North Korea's nuclear plans.

The U.S. delegation, led by Assistant Secretary of State for Asia James Kelly, met the North Koreans led by Vice Minister of Foreign Affairs Kim Kye Gwan at the Diaoyutai state guesthouse where the six nations' representatives are meeting, at 3 p.m., talking for more than two hours, a South Korean official involved in the talks told reporters. The official declined to be identified.

This is the first time in three rounds of talks that U.S. and North Korean delegations have held an official meeting together. The two sides held a ``direct informal contact'' during the second set of talks in February. It wasn't immediately known what the two sides talked about.

The full Beijing meeting, which also involves China and Russia, is the third on the North Korean nuclear issue in the six- nation format. Little progress has been made because North Korea insists on security assurances and energy aid in return for freezing its nuclear program.

The U.S. and North Korea each made proposals yesterday on ways to resolve the impasse, which began in October 2002, when North Korea admitted to the U.S. that it had broken a 1994 agreement and was continuing its nuclear development plan.

`Similarities and Differences'

``There are both similarities and differences'' in the U.S. and North Korean proposals, the South Korean official said. ``Still, we have something on which to base our discussions. We have taken an important first step.''

China's Foreign Ministry said difficulties may arise as the talks continued.

``With the deepening of discussions, differences between the parties may be further highlighted,'' Chinese Foreign Ministry spokeswoman Zhang Qiyue told reporters today. She didn't elaborate.

The U.S. offered pledges not to attack North Korea and talks aimed at removing North Korea from the U.S. list of state sponsors of terrorism, a U.S. official at the negotiations told reporters yesterday in Beijing. The terrorism designation carries with it economic penalties.

Verification

In exchange, North Korea would halt all nuclear development in three months and provide verification that the work is frozen, according to the U.S. official, who asked not to be identified. North Korea would have to describe its nuclear efforts during the suspension and later dismantle its program.

The U.S. has previously insisted the program be dismantled before talks start on establishing normal ties or economic assistance.

Washington asked North Korea to respond ``in good faith'' to the offer to help end its economic and political isolation.

``A good faith action on North Korea's part would be met with a good faith response by the other parties,'' White House spokesman Scott McClellan said in Washington. The U.S. is presenting a ``practical series of steps'' to achieve the dismantling of the North Korean program, he said.

North Korea has yet to make its proposals public. South Korea said they were similar to those made in the previous two rounds, which asked for security guarantees and ``reciprocating measures'' in return for halting nuclear development.

North Korean representative Kim said in his opening speech that the communist nation was ready to give up nuclear arms development, ``if the U.S. abandons its hostile policies.''

Fuel Aid

Japan said it was ready to offer fuel aid to North Korea in return for freezing all nuclear weapons development in a verifiable way, Hiroyuki Hosoda, chief government spokesman said in Tokyo. North Korea must provide full access to all information on the program, he said.

This is the first time that Japan has expressed its willingness to provide fuel. Japan has previously said it will not give financial aid or other economic assistance until it is satisfied North Korea has released all information on Japanese citizens abducted by its agents in the 1970s and 1980s.

The U.S. won't provide aid in the form of heavy fuel oil during the initial suspension, according to its proposal. South Korea, a U.S. ally, yesterday proposed oil aid on condition North Korea announce it will end nuclear-arms development, including production of highly enriched uranium that can be used in bombs.

South Korean Offer

South Korea offered energy aid in the second round of six- nation talks in February, with Russia and China saying they were willing to participate. This is the first time that South Korea has specified oil as the energy source. Fuel oil was sent to North Korea under the earlier disarmament agreement to supplement energy needs until the reactors were built.

South Korea is seeking to resolve the deadlock that has increased tensions on the peninsula for almost 21 months. It's concerned the threat of a nuclear North Korea may drive away overseas investors.

To contact the reporters on this story: Heejin Koo in Seoul at hjkoo@bloomberg.net and Rob Delaney in Beijing at robdelaney@bloomberg.net

Last Updated: June 24, 2004 06:54 EDT