17 Aug 2009, 1057 hrs IST

SEOUL, South Korea – North Korea announced Monday it had agreed to resume reunions of families separated by the border with South Korea and restart stalled tourism ventures in its latest gesture of conciliation after nearly 18 months of rising tensions.

The North, however, said separately it was putting its army on "special alert" because of South Korea's joint military drills with the United States this week, a sign that hostility and distrust between the rival countries remain high.

The official Korean Central News Agency said in a dispatch early Monday that North Korea and South Korea's Hyundai Group conglomerate agreed to restart tours to the scenic Diamond Mountain resort and ancient sights in Kaesong in the North. The tours had been suspended amid rising tensions that followed the inauguration of South Korean President Lee Myung-bak in Seoul early last year.

South Korea's conservative Lee angered Pyongyang by taking a tougher line than his predecessors on keeping North Korea accountable to its commitments on nuclear disarmament.

Hyundai has been the main South Korean investor in North Korea. Hyundai Chairwoman Hyun Jung-eun and North Korean leader Kim Jong Il held talks in Pyongyang on Sunday. Both tours to Diamond Mountain and Kaesong had been run by Hyundai's North Korea business arm, Hyundai Asan.

Kim had "a cordial talk with Hyun" and "complied with all her requests," according to the KCNA report.

Hyundai Asan in Seoul said it was aware of the North's announcement but couldn't immediately confirm it.

South Korea's Unification Ministry said Monday it would disclose its position on whether to accept the North's announcement after Hyun returns home later in the day and debriefs officials.

Ministry Spokeswoman Lee Jong-joo said government-level talks between the two Koreas were necessary to resume some of the stalled projects such as the Diamond Mountain tours and family reunions.

South Korea suspended tours to the mountain resort after a North Korean soldier fatally shot a South Korean tourist, who allegedly entered a restricted military area next to the resort, in July last year. South Korea called for a joint investigation but the North refused. North Korea suspended the tours to Kaesong late last year.

The report did not give exact dates for resumption of the tours, but said it was decided the Diamond Mountain trips would start "as soon as possible."

KCNA said the North also agreed to resume reunions of families separated by one of the world's most heavily fortified borders at Diamond Mountain on this year's annual "Chuseok" autumn harvest holiday Oct. 3. Chuseok is one of the two biggest Korean traditional holidays celebrated in both Koreas and is equivalent to Thanksgiving in the United States. It did not say if any other reunions would be held after that.

The North also said it agreed to ease restriction on border traffic and "energize" the operation of a joint factory park in Kaesong — the last remaining key joint project between the Koreas. The future of the industrial complex was thrown into doubt after the North significantly restricted border crossings and demanded a massive increase in rent and salaries for North Korean workers at the complex.

About 110 South Korean-run factories employ about 40,000 North Korean workers at Kaesong. Both the industrial complex and the tour projects are key sources of income for North Korea.

The North's announcement Monday was seen as a conciliatory gesture toward Seoul and Washington amid the standoff over its nuclear weapons program and comes after the resolution last week of a major thorn in relations.

South Korea's Yonhap news agency reported Monday that Chinese nuclear envoy Wu Dawei was expected to travel to North Korea later Monday to try to get Pyongyang to return to six-nation talks aimed at its denuclearization.

Yonhap quoted a diplomatic source it did not identify as saying there was a high chance of a visit by Wu. China's Foreign Ministry had no immediate comment.

On Thursday, the North freed a Hyundai worker whom it had detained for months for allegedly denouncing the communist country's political system. Pyongyang accused the employee of denouncing North Korea's government.

His return home followed by about a week the North's release of two jailed U.S. journalists after former President Bill Clinton made a surprise trip to Pyongyang.

Meanwhile, the North said Monday that its military will be on guard over South Korea's annual computer-simulated war games with the U.S. that started Monday.

The Supreme Command of the (North) Korean People's Army said in a statement that its troops and the entire nation would go on "special alert" starting Monday, calling the drills "a blatant challenge and grave threat" to peace on the Korean peninsula.

The statement, carried by KCNA, said the North would retaliate mercilessly at the "slightest military provocation" from South Korea and the U.S.

The North sees the exercises as preparation for an invasion, but the U.S. and South Korea say the maneuvers are purely defensive.

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