Tensions between the two countries have risen sharply this month after years of bad blood over Eritrea's independence and a 1998-2000 border war that killed 70,000 people and ended western hopes of an African renaissance led by, among others, both countries' leaders.

Seyoum Mesfin, Ethiopia's foreign minister, sent a letter to his Eritrean counterpart on Tuesday to "put Eritrea on notice" that, unless it complied with agreements signed in 2000, Ethiopia would consider terminating all or part of them.

But Yemane Gebremeskel, director of the office of the Eritrean president, told the Financial Times Ethiopia was violating the pact and international law by blocking the demarcation of the countries' border and "occupying Eritrea's sovereign territory" with its troops.

He had not yet seen Mr Seyoum's letter but said Ethiopia, a security ally of the US, appeared to have sent it to "deflect attention" from its own intransigence over the border issue.

Termination of the post-war deal, known as the Algiers Agreement, would bring the two countries closer to renewed conflict at a time when there are few international barriers to stop them.

A United Nations peace monitoring force, which was initially successful in separating the two sides, has little more than a symbolic presence on the disputed border now.

Meles Zenawi, Ethiopia's prime minister, has been under intermittent domestic pressure to finish what was started in 1998 and take the war to Asmara, the Eritrean capital. Meanwhile, Washington's willingness, signalled this month, to consider designating Eritrea as a state sponsor of terrorism could be interpreted by some in Addis Ababa as a green light to hostility.

Both sides say they do not want war but, with thousands of troops massed along the border zone, the UN said in July "there is a serious risk that a relatively minor incident could lead to a military confrontation".

Referring to the border dispute, Mr Gebremeskel said: "War is not on our agenda because, at the end of the day, this is a legal problem."

Ethiopia and Eritrea have been deadlocked for five years over the 2002 ruling of an independent boundary commission, which has been unable to demarcate the border on the ground and this month, in effect, conceded defeat.

To facilitate demarcation, Eritrea had indicated a willingness to move troops out of a temporary security zone round the border.

Ethiopia, however, dug its heels in, saying it would not discuss demarcation while Eritrea engaged in hostile acts in the temporary security zone and elsewhere in the region.

Mr Seyoum, in his letter, accused Eritrea of co-ordinating "the activities of terrorist groups to destabilise the region", a reference to the country's alleged activities in Somalia.

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