Sudanese President Omar al-Bashir and his Southern counterpart Salva Kiir entered a meeting room for the start of face-to-face talks, after hours of delay as rival delegations sought to bring negotiating positions closer.
The drawn-out talks in the Ethiopian capital began several months before South Sudan split in July 2011 from what was Africa's biggest nation, following a landslide independence vote after decades of war.
"There are still differences, but the teams are working to narrow the gap," said Atif Kiir, spokesperson for South Sudan's delegation to the African Union-mediated talks.
"We are still hopeful of a deal," he said, adding that meetings would continue on Monday, and that the talks Sunday were only the first round.
"There are some differences … but all the issues are on the table, and they [the presidents] will deal with them," his Sudanese counterpart Badr el-din Abdullah told reporters, adding security issues remained a sticking point.
Key issues include the ownership of contested regions along their frontier – especially the flashpoint Abyei region – and the setting up of a demilitarised border zone after bloody clashes.
The buffer zone would also potentially cut support for rebel forces in Sudan's Southern Kordofan and Blue Nile regions, where Sudan accuses Juba of supplying former civil war comrades whom Khartoum now seeks to wipe out.
Multiple rounds of talks have failed to find solutions, but both sides have said they are now optimistic, given the looming threat of UN Security Council sanctions and the signal of commitment with the leaders meeting.
A UN deadline passed on Saturday for the two presidents to settle the raft of issues left unresolved when the South became the world's newest nation last year.
The deadline was set after brutal border clashes broke out in March, when Southern troops and tanks briefly wrested the valuable Heglig oil field from Khartoum's control, and Sudan launched bombing raids in response.
UN leader Ban Ki-moon has called on the leaders to tackle their remaining differences, "so that their summit concludes with a success that marks an end to the era of conflict."
For once, the mood in these long-running talks appeared largely positive, with both Khartoum and Juba apparently keen to end conflict and a stalemate over stalled oil production that is crippling both their economies.
While the two leaders have met several times in recent months, delegates said there was a real sense some form of a deal was possible.
Chief mediator Thabo Mbeki, the former South African president, was seen shuttling between multiple delegations addressing issues of security, border demarcation, oil and finance.
"There does seem a genuine move towards finding a broad solution, even if technical issues and details will certainly need fixing in future meetings," a Western diplomat said.
"We are not going to go back to fighting each other, we know the cost of that after 50 years of war," said the South's spokesperson Kiir. "It is time to rebuild our lives, to rebuild our nation."
But delegates are also acutely aware that both sides have signed multiple deals in the past, including agreement on demilitarised border zones that were never fixed, and non-aggression pacts scuppered by subsequent clashes.
"Reaching a deal is one thing, implementation is another," the Southern spokesperson added.
A comprehensive deal – as opposed to another stepping-stone agreement – would have to include settlement on Abyei, a Lebanon-sized frontier area claimed by both sides and currently controlled by Ethiopian peacekeepers.
But amidst the diplomatic optimism, there seemed on Sunday little chance of a breakthrough to solve the growing humanitarian crises in Sudan's civil war states of Southern Kordofan and Blue Nile.
However, it was hoped the summit would settle the details of last month's deal to fix the oil export fees that landlocked Juba will pay to ship crude through Khartoum's pipelines to the Red Sea.
At independence, Juba took with it two-thirds of the region's oil, but processing and export facilities remained in Sudan. In January, the South shut off oil production after accusing Sudan of stealing its oil. – Sapa-AFP