May 23 (Bloomberg) -- South American leaders signed a treaty to create a continental bloc modeled on the European Union that probably won't overcome the growing mistrust and economic divisions among the 12 member-nations.

The agreement to establish the Union of South American Nations, or Unasur, is unlikely to bear fruit, given increased antagonism over Venezuela's alleged support for Marxist rebels in Colombia and the countries' divergent economic policies, said Michael Shifter, vice president of the Washington-based policy group Inter-American Dialogue.

``Unasur is a pipe dream for now,'' Shifter said. ``The irony is that economic conditions in the region have never been riper for this sort of integration.''

The summit today in Brasilia marks the culmination of diplomacy Brazil started in 2004 to unite the region's two main trading groups --known as Mercosur and the Andean Community -- into a single bloc with gross domestic product of about $2 trillion.

It also follows other efforts, most promoted by Venezuelan President Hugo Chavez, to strengthen regional economic ties and counter U.S. influence. Those plans, such as a regional alternative to the International Monetary Fund known as the Bank of the South, are yet to yield concrete results.

The Unasur treaty sets goals for integration of energy and transportation networks and immigration policies, Brazil's Foreign Ministry said in a statement. It also establishes a South American parliament in Cochabamba, Bolivia, the statement said. It must still be ratified by each signing nation.

`New Dawn'

``Today we fulfill the dreams of our ancestors and liberators,'' Bolivian President Evo Morales said before signing the treaty. ``There is a new dawn in South America.''

The continental bloc, for now at least, is likely to exist only on paper. Similarly, the summit's show of unity will be brief despite Brazilian President Luiz Inacio Lula da Silva's efforts to smooth over differences, Shifter said.

Chavez's allies Ecuador, Bolivia and Argentina are following Venezuela's policies by ramping up state intervention in their economies with price and export controls and nationalizations. Colombia, Chile, Peru and Brazil are sticking to a more pro-market course.

Colombian charges that Chavez supports a group classified by the U.S. and European Union as terrorist has deepened the division.

`Hostile to Investors'

The treaty was originally scheduled to be signed in March. That event was canceled after Colombia raided a guerrilla camp of the Revolutionary Armed Forces of Colombia, or FARC, in Ecuador, killing a senior rebel commander. The incursion prompted protests from Venezuela and Ecuador, and both sent troops to their borders.

Tensions spiked again last week after Interpol, the international police agency, authenticated computer files seized during the raid that Colombia says showed Chavez was arming and financing the rebels. Chavez dismissed the findings as a ``clown show.''

Correa told reporters today in Brasilia that ``relations with Colombia are at a dead end.''

Colombian President Alvaro Uribe has cooled to plans for regional cooperation in light of his neighbors' failure to address Venezuela's backing for the guerrillas. Colombia turned down an offer to take Unasur's first rotating presidency. Uribe told RCN radio May 21 that he supported having Chile assume that role. He also rejected a separate Brazilian initiative to forge a South American security council.

Today he shifted his position to propose a 90-day period for all Unasar members to study plans for the organization.

Changed Map

``Our difficulties are not only the FARC but also some governments in Latin America who don't like our development model,'' Uribe said during the radio interview. ``Some governments think being hostile to investors and reviving state- run monopolies is the only path to prosperity.''

Chavez, while proposing new agreements, has backed away from longer-standing cooperative efforts and in 2006 withdrew from the five-nation Andean Community over Colombia's bid for a U.S. free trade agreement.

He has since joined the Mercosur trade bloc. That group's slow progress over 17 years toward a common market of Argentina, Brazil, Paraguay and Uruguay doesn't bode well for Unasur's prospects, Shifter said.

Nationalization of assets by Venezuela, Ecuador and Bolivia, which in 2005 forced Brazil's state-controlled oil company Petrobras to sell its refineries, also pose an obstacle to Unasur economic integration, said Rubens Barbosa, a former Brazilian ambassador to the U.S. and currently the president of the Foreign Trade Council at Sao Paulo's Industrial Federation.

``The region's political map has changed and many leaders in power are pursuing national policies that overwhelm their regional commitments,'' Barbosa said.

To contact the reporter on this story: Joshua Goodman in Rio de Janeiro at Jgoodman19@bloomberg.net

Last Updated: May 23, 2008 15:10 EDT