The new peace instrument would be signed by the original armistice signatories - North Korea, the United States and China. South Korea and Japan would also be included. The agreement would depend on North Korea ending its nuclear arms program, and resolving concerns about its missile program and development of biological and chemical weapons.

Apart from officially ending hostilities between North and South Korea, the document would also set down how the two Koreas should co-exist. Washington was also separately looking at providing a guarantee to North Korea that it would not attack, the Nikkei said. The US has flagged the possibility of a regional security guarantee for North Korea - something the communist state has said it would consider.

The Bush Administration will demand a verifiable end to North Korea's nuclear program before making commitments to the communist state. The Administration is determined to avoid a repeat of the fate of the 1994 deal negotiated by the Clinton administration, under which the North gave up its nuclear ambitions in return for substantial energy aid, including two light-water nuclear reactors.

That deal was dashed last October when North Korea admitted to a clandestine nuclear program. Yesterday, the program to build the reactors also appeared to be dead. Reports from New York said the US had convinced Asian and European members of the Korean Energy Development Organisation to suspend the building of the reactors. While the decision to suspend the project had been made, the announcement would not be made until later this month.

The developments come as intense diplomatic efforts continue to try to convene peace talks on the nuclear crisis by the end of next month. They will be the third round of six-nation talks organised by China, which has played a central role in trying to find a solution to the crisis.

Beijing is a major source of aid to North Korea, and exercises considerable influence over Pyongyang. Tension between North Korea and Japan, one of the parties to the talks, has surfaced at the United Nations during a debate over the crisis. North Korea's deputy UN ambassador Kim Chang-guk has repeatedly referred to the Japanese as "Japs".

"The Japs are now turning the whole society to the right to resurrect militarism and fascism with a view to reinvade North Korea," he told the General Assembly. Japan brutally annexed Korea from 1910 to 1945.

Mr Kim said he had decided to use "Japs" in retaliation for a Japanese diplomat calling his country North Korea, rather than its official name of the Democratic People's Republic of Korea. Japan's deputy ambassador, Yoshiyuki Motomurea, said "Japs" was derogatory. He said the use of "North Korea" was a geographical concept, and not intended as a derogatory term. - with agencies