The remark, which raised a loud laugh from the assembled press pool, capped a joint appearance that exposed how relations between the two men have become strained in the past two years, since Washington began criticising Putin's iron grip on Russia's media and politics.

Bush said that, during two hours of discussions, 'I talked about my desire to promote institutional change in parts of the world like Iraq where there's a free press and free religion. I told [Putin] a lot of people in our country ... would hope that Russia would do the same thing. I fully understand, however, that there will be a Russian style of democracy.'

Putin replied, smiling: 'I'll be honest with you: we, of course, would not want to have a democracy like in Iraq.' Bush interrupted to say 'Just wait' - a reference to Iraq's democracy being in its infancy - before Putin continued: 'Nobody knows better than us how we can strengthen our own nation. But we know for sure that we cannot strengthen our nation without developing democratic institutions. And this is the path that we'll certainly take; but certainly we will do this by ourselves.'

Bush likes to speak of his close friendship with Putin; the White House claims it enables a frank exchange on sensitive issues such as the alleged backsliding of democracy in Russia and Putin's outright opposition to the Iraq war. Putin, however, is cooler about his friendship with Bush. But the two men did present some show of harmony in resurrecting an old idea to combat the threat of nuclear terrorism by setting up international enrichment centres to control atomic material under the auspices of the International Atomic Energy Agency.

Prime Minister Tony Blair secured a coup at the summit by ensuring that a separate discussion will be held in St Petersburg on progress towards meeting the ambitious goals to free Africa from poverty, made at the last G8 meeting in Gleneagles a year ago.

Blair himself will lead the discussion, which will also embrace efforts to combat climate change, including using new mechanisms outside the Kyoto Protocol as a way of engaging the Americans.

Blair is also increasingly hopeful that the summit will kickstart trade development talks, which have failed to make progress owing to disputes between America, the EU and Brazil. Number 10 is not expecting a deal, but hopes progress will be made on the details over the next month. If nothing happens in the next few weeks, Bush will lose his mandate to negotiate with the WTO and will have to go back to an increasingly protectionist Congress to try to get it renewed.

With Russia determined to pursue its agenda on energy security - code for greater Russian access to European markets - Blair is eager to widen the discussion from the supply of energy to its over-use and impact on the climate.

The talks otherwise ended with little real progress. Discussions over Russia's membership of the WTO stalled again. Bush and Putin were vague over their joint approaches over North Korea and Iran. Bush said: 'I'm confident that we can get something done at the United Nations.' Putin added: 'If the Iranians see that the US and Russia are working together, they will see the seriousness of our intent.'