Stepping up their cooperation to fight terrorism, India and Australia on Thursday signed an agreement to work together to combat international terrorism.

The Memorandum of Understanding was signed by visiting External Affairs Minister Yashwant Sinha and his Australian counterpart Alexander Downer in Adelaide.

Under the MoU, the two countries vowed to join forces in the battle against regional and global terrorism.

"The MoU will forge closer cooperation between our respective security, intelligence and law enforcement agencies. With India, we have one of our most important bilateral relations and they are moving in a strategic direction," Downer said.

Terrorism was the main focus of the third round of the Australia-India Foreign Ministers' Framework Dialogue held on Thursday.

Expressing his deep sympathy with the Indian people following Monday's car bomb blasts in Mumbai, Downer said, "This terrible event underscores the critical need for regional cooperation to fight terrorism. India has great experience in dealing with terrorism and has the knowledge to deal with terrorist organisations. We have tremendous capacity to work together."

The two ministers also discussed the issue of proliferation of weapons of mass destruction, developments in North Korea, Iraq, South and Southeast Asia, the Pacific, Solomon Islands, and the Commonwealth including, Zimbabwe and Pakistan.

Downer said the strategic convergence of Australia and India is matched by an expanding commercial partnership.

With trade at record levels and investment growing steadily in both directions, Downer emphasised Australia's capacity and willingness to support India's economic expansion and said, "We don't want India to be the '12th man in trade'," to which Sinha quipped, "We hope to be the opening batsman soon."

The Australian minister said India is the second largest source of migrants to Australia and Indian immigration is likely to increase. It has also become a popular destination for Indians seeking a quality education overseas, after the United States and Britain.

Sinha leaves for Melbourne in the evening to attend a community dinner hosted by Indian High Commissioner to Australia R S Rathore and meet the treasurer, the minister for communications and Information Technology and the opposition Labour leader Simon Crean. He will also hold high-level talks with Australian Premier John Howard.