Prime Minister Stephen Harper reached an agreement on Thursday with U.S. President George Bush to resume talks on the contentious softwood lumber dispute.

"We have given instructions to our officials to discuss what the options are," Harper said after his first one-on-one session with the president.

"But the position of the Canadian government is clear: if we don't see a resolution, Canada will pursue all its legal options as well as financial support for the softwood industry."

Bush declared earlier that he has always been "optimistic" about resolving the softwood issue that has strained U.S. relations with Canada for years.

There has been little movement on the file since last August, when a NAFTA panel ruled in favour of the Canadian lumber industry, saying the U.S. was wrong to impose the punitive tariffs.

But Washington refused to abide by the ruling, while the U.S. lumber lobby continued to pressure Congress to maintain the tariffs.

Speaking after meeting Harper and Mexican President Vicente Fox at the first of a two-day summit in Cancun, Bush complimented the Canadian prime minister on his tenacity.

"He made an emphatic case for softwood lumber. I appreciate his steely resolve to get something done," said Bush, grinning.

"I assured him that our intention is to negotiate in good faith ... to resolve this issue. I appreciate your pushing.''

The two leaders also agreed to meet again later this spring in Washington, but no date or details were announced.

Senior officials said both countries would come up with discussion papers exploring various options.

Negotiations, however, have repeatedly failed to result in a resolution since the dispute began in 2001.

Border issues

Harper and Bush also discussed Washington's plan to require a passport or a type of secure document from all foreign visitors entering the U.S.

Like the softwood file, they agreed to have their officials work on the issue. But it's doubtful that Canada could persuade the U.S. not to demand such documents -- especially since Congress already passed The Western Hemisphere Travel Initiative in 2004.

Under the plan, secure documents will be required for land travellers coming into or back into the U.S. as of Dec. 31, 2007.

Critics of the initiative say it will erect a wall with grave implications for business and travel.

CTV's Ottawa bureau chief Robert Fife said Bush has agreed to have his Homeland Security Secretary Michael Chertoff meet with Canada's Public Safety Minister Stockwell Day to resolve the issue.

"But American officials are telling us privately that there is no solution. The only solution is for Canadians to adopt some form of North American identity card that works with the American one," said Fife. "And that essentially is what those negotiations will be about: how Canada will fit in with the American model."

Fox presses Harper

Before his meeting with Bush, Harper met with Fox and said he hopes to increase trade with Mexico by 50 per cent within four years.

The Mexican president pressed Harper to allow more workers from his country into Canada to fill job sectors that face work shortages. Harper said he would have his officials examine the request.

Under an existing agreement between Canada and Mexico on seasonal workers, thousands of Mexicans work in the Canadian agricultural industry every year.

"There is no doubt that the relationship between Canada and Mexico has been very successful with our trade and with our participation as allies in NAFTA," Fox said after meeting Harper.

"Trade between our countries has increased 13 times since NAFTA was signed."

Fox said he also wants Canada to participate in talks over providing energy products to Central America, with a view to improving development in the region.

Bush and Fox both wore casual white shirts for the trip, while Harper sported a blue shirt with an army-green vest zipped up over the top.

Harper seemed intent to shift the tone of the relationship between Canada and the Bush administration -- a frosty one under Liberal prime ministers Jean Chretien and Paul Martin.

While Martin fought with the U.S. on issues such as climate change to missile defence, Chretien raised the ire of the Bush administration by refusing to join the war in Iraq.

On Thursday, Harper thanked the U.S. for helping in the recent rescue of two Canadian hostages in Iraq.

"This instance reminds us when the chips are down, we all pull together and support each other," said Harper.

Bush responded with praise for Harper and Canada.

"I view the relationship with Canada as a vital relationship for the United States," Bush said. He spoke of the "great Canadian tradition of helping restore human dignity in people's lives" around the world.

Thursday's meetings will be capped off by a lavish dinner hosted by the Mexicans.