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Arch-foes Armenia and Azerbaijan said Thursday they would exchange prisoners of war and work towards normalising their relations, in a joint statement hailed by the EU as a "breakthrough".

The Caucasus neighbours have been locked in a decades-long conflict over the Nagorno-Karabakh region, which Azerbaijan reclaimed after a lightning offensive against Armenian separatists in September.

Both countries have said a peace agreement could be signed by the end of the year, but peace talks -- mediated separately by the European Union, the United States, and Russia -- have seen little progress.

The two sides agreed in Thursday's joint statement to seize "a historical chance to achieve a long-awaited peace in the region".

"The two countries reconfirm their intention to normalize relations and to reach the peace treaty based on respect for the principles of sovereignty and territorial integrity," the statement said.

Baku will free 32 Armenian prisoners of war, while Yerevan will release two Azerbaijani servicemen, according to the statement.

The two countries also said they "will continue their discussions regarding the implementation of more confidence-building measures, effective shortly, and call on the international community to support their efforts".

COP29

As a sign of good faith, Armenia also announced it was withdrawing its bid to host UN-led climate talks next year to pave the way for Azerbaijan's candidacy.

The annual negotiations focusing on fighting climate change, known as COPs, rotate among regions and were due to be hosted by an Eastern European country in 2024 after this year's COP28 in Dubai.

"As a sign of good gesture, the Republic of Armenia supports the bid of the Republic of Azerbaijan to host the 29th Session of the Conference of Parties (COP29) to the UN Framework Convention on Climate Change, by withdrawing its candidacy," the statement read.

"Armenia and the Republic of Azerbaijan do hope that the other countries within the Eastern European Group will also support Azerbaijan's bid to host," it added.

A grouping of Eastern European nations must unanimously choose the COP29 host, but Russia is reportedly opposing an EU member holding the event as tensions with the bloc run high during the war in Ukraine.

Non-EU countries Armenia and Azerbaijan were both seen as candidates, but Baku's offensive in the disputed region of Nagorno-Karabakh has escalated tensions with Moscow.

Key step

The agreements were reached during talks between the office of Armenian Prime Minister Nikol Pashinyan and the administration of Azerbaijan President Ilham Aliyev.

Armenia's foreign ministry said Yerevan had "responded positively to the offer of US Secretary of State Antony Blinken to organise the meeting of the Foreign Ministers of Armenia and Azerbaijan in Washington".

EU Council President Charles Michel praised the statement Thursday in a post on social media, calling it a "key step".

"Delighted to welcome a breakthrough in Armenia-Azerbaijan relations as they issue a joint statement," he said.

The United States also welcomed the steps by the two countries.

"This commitment represents an important confidence-building measure as the sides work to finalize a peace agreement and normalize relations," State Department spokesman Matthew Miller said in a statement Thursday.

Stalled talks

Aliyev and Pashinyan have met on several occasions for normalisation talks mediated by the European Union.

But the process has stalled over the last two months as two rounds of negotiations failed to take place.

Azerbaijan refused to participate in talks with Armenia that were planned in the United States on November 20, over what it said was Washington's "biased" position.

In October, Aliyev declined to attend a round of negotiations with Pashinyan in Spain, that time accusing France of bias.

French President Emmanuel Macron and German Chancellor Olaf Scholz had been scheduled to join Michel as mediators at those talks.

There has been no visible progress so far in EU efforts to organise a fresh round of negotiations.

The traditional regional power broker Russia -- bogged down in its Ukraine war -- has seen its influence wane in the Caucasus.

Aliyev sent troops to Karabakh on September 19, and after just one day of fighting, Armenian separatist forces that had controlled the disputed region for three decades laid down arms and agreed to reintegrate with Baku.

Almost the entire Armenian population of the mountainous enclave -- more than 100,000 people -- fled Karabakh for Armenia over the following days, sparking a refugee crisis.

Azerbaijan's victory marked the end of the territorial dispute, which saw Azerbaijan and Armenia fight two wars in 2020 and the 1990s that claimed tens of thousands of lives from both sides.