The leaders of South Korea and Japan have agreed to improve diplomatic and economic ties, despite bitter feelings from Japan's occupation of the Korean peninsula and a lingering territorial dispute.

South Korean President Lee Myung-bak held talks with Japanese Prime Minister Yoshihiko Noda in Seoul Wednesday, the second meeting between the two leaders since Mr. Noda took office in late August. The two held talks on the sidelines of the United Nations General Assembly last month.

The leaders agreed to resume working-level talks on a long-stalled bilateral free trade agreement, and to increase a currency-swap deal aimed at stabilizing their financial markets.

They also pledged to continue cooperation on resolving North Korea's nuclear weapons program.

As a goodwill gesture, Mr. Noda returned five volumes of ancient Korean royal documents Japan seized during its colonial rule of Korea from 1910 to 1945.

In a joint press conference after their meeting, Mr. Lee said he told Mr. Noda it was important for the two sides to move forward “without forgetting history.” He said Japan should make greater efforts to resolve the issues stemming from its actions before 1945.

South Korea wants Japan to make restitution to Korean women who were forced into sexual slavery during World War Two. Japan says compensation for the so-called “comfort women” was already covered in a 1965 treaty that normalized bilateral relations.

Seoul and Tokyo are also at odds over ownership of a group of islands known as Dokdo in Korea and Takeshima in Japan. The dispute was aggravated this year when South Korean air carrier Korean Air made a test flight over one of the islands. Japan responded by banning its public workers from using the airline for a month.

Mr. Noda said the problems the two countries occasionally face are regrettable, but insisted a cooperative relationship is in place.