India and Pakistan have agreed to fully normalize trade, signifying a thaw in relations between the two nuclear-armed rivals.

Indian Commerce Secretary Rahul Khullar and his Pakistani counterpart Zafar Mahmood called for the creation of a timeline to lift longstanding tariffs and other trade barriers. The two officials concluded two days of talks in New Delhi on Tuesday, the first to be held in India in 35 years.

As part of the agreement, Pakistan said it would increase the number of goods that can be traded by February of 2012. Only a small number of goods will remain on a list of items that can not be traded. Both countries hope to gradually phase out that list by the end of 2012 and increase trade to $6 billion in three years.

The trade talks took place nearly two weeks after Pakistan's Cabinet approved a proposal granting India most-favored nation trade status. The designation removes tariffs, allowing countries to trade on equal terms.

While India granted Pakistan most-favored nation status in 1996, Pakistan had hesitated. Critics in Pakistan have cited the long-standing dispute over the Himalayan region of Kashmir.

The longtime rivals have fought two of three wars over Kashmir.

Earlier this year, India and Pakistan decided to restart peace talks, which were frozen after the 2008 terrorist attacks in the Indian's financial hub, Mumbai. India blamed the assault that killed 166 people on Pakistani-based militants.

Last week, Indian Prime Minister Manmohan Singh and his Pakistani counterpart Yousuf Raza Gilani promised a “new chapter” in bilateral ties and pledged to work together to combat terrorism and improve trade.

Indian and Pakistan trade secretaries also said Tuesday they agreed to ease restrictions on business visas to help spur cross-border trade.