South Korean Prime Minister Han Duck-soo and his North Korean counterpart Kim Yong-il concluded three days of negotiations in Seoul, the first meeting between the countries' premiers since 1992.
The rail service, to be resumed after a more than 50 year hiatus, will run from the South to the North Korean border city of Kaesong, where an industrial park is being built by the countries. Mobile phone and internet services are set to be introduced to the city next year.
The agreements follow a meeting in Pyongyang in early October, when the presidents of North and South Korea, Kim Jong-il and Roh Moo-hyun, signed a historic joint declaration pledging a commitment to peace talks and economic cooperation projects.
On Friday the sides also agreed to set up a joint fishing zone off the west coast of the Korean peninsula, where in the past territorial disputes led to naval clashes, and to turn the area into a "peace and cooperation zone."
Other agreements reached in Seoul, aimed at rebuilding the impoverished North's decaying infrastructure, include South Korean plans to build a shipyard in the northwest of the communist state and to repair the highway linking Kaesong to the capital, Pyongyang.
The two Koreas have been technically at war since the 1950-53 Korean War. However, any formal peace treaty would require the participation of the United States and China, which were also involved in the conflict. The U.S. has so far been reluctant to discuss a peace treaty until the North fully discontinues its nuclear program.
The thaw in relations between the two countries was given a boost by progress at six-party talks held in October involving South and North Korea, China, the U.S., Russia and Japan, when North Korea agreed to disable its Yongbyon reactor by the end of the year.
