South Korean President Lee Myung-Bak on Monday reached out to North Korea, saying Seoul was open to talks and offering closer economic ties despite high tensions on the peninsula.
In his New Year policy address, just days after Pyongyang called for improved relations in 2011, Lee also urged the North to abandon its "military adventurism."
Relations between the two Koreas plunged after the North shelled a border island in November, killing four people, including two civilians.
The South has since staged a series of military exercises, including a live-fire drill on December 20 on the island but the North did not follow through with threats of a new and deadlier attack.
Despite the heightened tensions, Lee held out hopes for improved ties, saying the door for talks between the Koreas was "still open".
"If the North exhibits sincerity, we have both the will and the plan to drastically enhance economic co-operation together with the international community," he said.
"The North must come to the realisation that nothing can be gained through military adventurism. Nuclear weapons and military adventurism must be discarded," he added.
The North, in a joint New Year editorial of state media on Saturday, said tensions "should be defused as early as possible," stressing dialogue and co-operation "should be promoted proactively."
"In 2011 we should launch a more determined campaign to improve inter-Korean relations," it said.
Analysts said Lee, speaking for the first time since North Korea issued its New Year message, was telling Pyongyang that Seoul was ready to revive talks, which have been at a standstill for three years.
"This is Seoul's answer to Pyongyang's New Year editorial that it is politically ready to revive talks," said Baek Seung-Joo of the Korea Institute for Defence Analyses.
The North's shelling attack on Yeonpyeong island, the first attack on a civilian area since the 1950-53 Korean War, drastically heightened cross-border tension and sparked a regional crisis.
The South's flurry of military exercises, including one with the United States on the Yellow Sea, drew an angry response from Pyongyang.
World leaders were quick to condemn the November 23 attack, with many calling on China to rein in its unruly ally, something Beijing so far appears unwilling to do.
China instead proposed bringing together the envoys of the long-stalled six-nation disarmament talks on the nuclear-armed North to defuse tension.
But Seoul, Washington and Tokyo have showed a lukewarm response, saying Pyongyang first needs to show sincerity for denuclearisation and to mend ties with the South.
"North Korea is holding the key. What's more important is its sincere attitude," South Korean foreign ministry spokesman Kim Young-Sun said, ahead of US envoy Stephen Bosworth's trip this week to Seoul, Beijing and Tokyo.
Baek said breakthroughs in inter-Korea relations were often made possible by the determination of political leaders, despite very difficult diplomatic circumstances.
"Political leaders' will is often far more important than circumstances in inter-Korea relations," he said, citing the first inter-Korean summit in 2000, which was held a year after a bloody naval clash near the tense sea border.
That sea battle, also near Yeonpyeong, was one of the biggest cross-border clashes, leaving dozens of North Korean sailors dead.
"Behind-the-scene preparations for the 2000 summit started only months after the naval clash," Baek said.