"The two sides can pick the right time to engage in exchanges on military issues and explore setting up a military and security mechanism to build mutual trust," Hu said.

This would help "improve the situation in the Taiwan Strait and lessen military and security concerns" he said in a speech broadcast live on national television.

The address was to mark the 30th anniversary of a message from China to "compatriots in Taiwan" which called for reunification of the two sides by peaceful means.

China and Taiwan have been governed separately since the end of a civil war in 1949 but Beijing considers the island part of its territory and is determined to get it back, by force if necessary.

Their relationship has been one of the world's most dangerous potential flashpoints, with both sides lining up billions of dollars of military hardware against each other in readiness for a possible war.

China has targeted Taiwan with more than 1,000 short-range ballistic and cruise missiles, according to defence authorities on the island.

But relations have improved dramatically since Ma Ying-jeou, a politician from Taiwan's Beijing-friendly Kuomintang party, assumed the island's presidency in May.

As part of the recent rapprochement, the two sides this month began direct daily flights, postal and shipping services, in a move expected to boost trade ties.

Taiwan's defence ministry gave no immediate reaction to Hu's remarks but the Kuomintang issued a statement welcoming the remarks.

"We have never relaxed in our efforts to seek the expanded space that Taiwan needs for its international activities, establishing a cross-Strait military confidence-building mechanism, and reaching a peaceful agreement," said the statement.

"Today Secretary-General Hu Jintao has responded positively to the above. We are glad to see these commitments, and we further hope that concrete results will be reached in the foreseeable future."

In the speech Hu also urged Taiwan's pro-independence Democratic Progressive Party, the island's main opposition force, to "clearly understand the situation and stop secessionist activities".

"If the party could abandon its 'Taiwan independence' stance, we would make a positive response," he said.

Hu also called for growing economic interaction with Taiwan, a major source of investment, especially along the export-dependent east coast of the mainland.

"We continue to welcome and support Taiwan companies' business in the mainland and encourage mainland enterprises to invest in Taiwan," Hu said.

"We expect to normalise economic relations across the Strait and establish an economic cooperation mechanism."

The DPP rejected Hu's overtures, saying Beijing's position had long been the stumbling block in relations.

In a statement, the party said: "We think the biggest problem dividing Taiwan and China is not what the DPP has been advocating, but is the Taiwanese people's feelings towards China -- Beijing's military threat, its attempts to block Taiwan in the international community and its continued efforts to reduce Taiwan's international status.

"If China sincerity wants to have a dialogue with the DPP, it should not have imposed pre-conditions, nor asked us to alter our stance."

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