* Presidents Bashir, Kiir meet face to face at Addis hotel
* They agree to negotiate disputes, shun conflict
* Meeting seen bolstering ongoing talks over frontier, oil
* U.N. Security Council has set Aug. 2 deadline for deal (Updates with quotes, details, background)
By Aaron Maasho
ADDIS ABABA, July 14 (Reuters) - The presidents of Sudan and South Sudan on Saturday held their first talks since their countries came close to war in April, raising hopes for a negotiated settlement of oil and border disputes before an Aug. 2 U.N. Security Council deadline.
The face to face encounter between Omar Hassan al-Bashir and his southern counterpart Salva Kiir at the Sheraton hotel in the Ethiopian capital Addis Ababa followed an African Union session in which both men committed to peaceful negotiations over conflict.
The two met for more than an hour at the hotel, first with aides and then for a private one-on-one session of talks.
"The two presidents have agreed and instructed their negotiating teams to expedite negotiations and develop bold decisions in key areas as well as to reach agreements in all issues," Kiir's chief negotiator Pagan Amum told reporters.
The neighbours, which made up Sub-Saharan Africa's largest country before South Sudan gained independence last year, face the threat of sanctions from the U.N. Security Council unless they peacefully resolve the border, oil and other security disputes by a deadline of August 2.
The Security Council has already expressed concern over delays in the negotiating process.
South Sudanese rebels fought the government of the largely Muslim, Arabic-speaking north for more than two decades in a bloody civil war that ended with a 2005 peace accord, opening the way for the independence of the South last year.
In April, the countries' two armies were on the point of returning to all-out war when they clashed over the disputed border oil area of Heglig.
But Saturday's meeting between Bashir and Kiir appeared to have cleared the way for the two sides to bury their enmity and strike a deal over how to share revenues from oil produced in South Sudan which must pass through pipelines located in the north to be exported.
Disputes over this led South Sudan to shut down in January its oil output of 350,000 barrels per day (bpd) - two thirds of which was produced by the old unified Sudan before Juba's independence - in a move that has badly strained the oil-dependent economies of both states.
South Sudan had accused Khartoum of "stealing" and diverting oil pumped from wells located in the southern nation.
"I believe there is an opportunity now for a fair deal, where the two sides close the chapter of hostilities," Amum, who is also Secretary General of South Sudan's ruling Sudan Peoples' Liberation Movement (SPLM), said.
"We are ready to resume oil production if there is a fair deal, and there is a guarantee that there will be no diversion (of the oil)," Amum added.
"NEW SPIRIT"
He said Kiir had made clear in the meeting with Bashir that "his strategic interest is to develop relations of peaceful cooperation with all neighbours of South Sudan".
Earlier, before African heads of state at the AU Council session, the two presidents had pledged themselves to a "new spirit of strategic partnership", the AU's Peace and Security Commissioner Ramtane Lamamra told reporters.
He added this included a commitment "never again to have recourse to force to resolve their differences".
But at the earlier gathering at AU headquarters, the two leaders had not shaken hands or held direct talks.
Norway's Special Envoy to Sudan and South Sudan, Endre Stiansen, said he welcomed the active participation of the African Union in encouraging the two Sudans to keep talking.
"We are getting to the end of the (U.N. Security Council) deadline and so it is essential that pressure is maintained on the parties," he told Reuters in Addis Ababa.
Stiansen said he hoped the two sides could settle their differences over the position of their border, how much the landlocked South should pay to transport its oil through Sudan, and the division of national debt, before Aug 2.
"There is nothing new on the table now. If they want to move, they can move," he said.
(Additional reporting and writing by Pascal Fletcher; editing by Patrick Graham)
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