DUBAI, United Arab Emirates (AP) — Iran's President Hassan Rouhani held talks with the leader of the nearby sultanate of Oman on Wednesday, his first official trip to an Arab country since taking office last year.

The visit is aimed at boosting bilateral relations between the two countries, though it also has the potential to further ease tensions between the Islamic Republic and Western powers.

Oman stands out among Gulf Arab states for its ability to balance friendly relations between Iran and the West.

A tangible sign of the growing bonds between the neighbors came late Wednesday with the signing of an initial deal to build an underwater pipeline that would ship Iranian natural gas to Oman.

The moderate-leaning Rouhani, who has vowed to improve Tehran's relations with its neighbors, was accompanied by a high-ranking economic delegation for the two-day visit.

"Relations with Islamic countries and particularly neighboring countries are of extraordinary importance for us," Rouhani told reporters shortly before departing from Tehran.

Oman's ruler, Sultan Qaboos bin Said, welcomed the Iranian leader at the al-Alam palace. The colorfully decorated complex is nestled near the capital Muscat's mountain-ringed harbor on the edge of the Gulf of Oman.

Iran and Oman lie on opposite sides of the Strait of Hormuz, the strategic waterway at the mouth of the Persian Gulf that is the route for one fifth of the world's oil.

Saudi Arabia and other Western-allied Arab nations in the six-member Gulf Cooperation Council are wary of Iran's influence in the region.

Oman is a member of the GCC, but it has traditionally worked to cultivate warm ties with Iran and has at times acted as a mediator between Tehran and the West.

Iran and Oman have been strengthening economic ties, including a recent deal to boost the number of airline flights between the two countries. Iran agreed to a long-term natural gas supply agreement with Oman last year.

Iran's semi-official ISNA news agency quoted Iranian Oil Minister Bijam Namdar Zanganeh saying the 350-kilometer (217-mile) gas pipeline covered under the interim deal would link the southern Iranian gas field of Roudan to Oman. A joint Iranian-Omani company would complete the estimated $1 billion project and sell the gas in Oman and other countries.

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Feasibility studies must still be carried out before the project moves ahead, according to the Omani state news agency.

An earlier report on the visit by the agency expressed hope that Rouhani's trip will bring greater "prosperity and welfare" to both countries, and "more rapprochement and reconciliation to this vital region."

The sultanate was the site of some of the secret talks between Iranian and American representatives that preceded a landmark nuclear deal in Geneva in November. Under that interim agreement, Iran agreed to curb parts of its nuclear program for six months in exchange for some relief from Western sanctions.

Tehran disputes allegations that it aims to develop atomic weapons. It says its nuclear program is only for peaceful purposes, such as producing electricity, and for scientific and medical research.

The terms of a broader deal involving long-term restrictions on nuclear work in exchange for an end to all economic sanctions are still being worked out.

Oman also played a key role in the release of three American hikers in 2010 and 2011 who were detained by Iran while hiking near the Iran-Iraq border.

Sultan Qaboos traveled to Tehran in August, becoming the first foreign leader to visit Rouhani since he took office. On that visit, he said his country was prepared to develop trade routes through Iran between Oman and Central Asian countries such as Turkmenistan and Uzbekistan.

Rouhani's trip follows a visit by Iranian Foreign Minister Mohammad Javad Zarif to several Gulf states, including Oman, in December. Senior Iranian leaders have yet to visit Gulf heavyweight Saudi Arabia.

Former Iranian President Mahmoud Ahmadinejad visited Oman in 2007.

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Associated Press writer Nasser Karimi in Tehran, Iran, contributed to this report.

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