On Sunday, N. Korea apologized to the South for a submarine incident last September, and has for the first time agreed to talk directly with the U.S. and South Korea about peace. Charles Krause provides a background report, then leads a discussion between two U.S. - Korea policy experts.

CHARLES KRAUSE: When South Korea returned the cremated bodies of 24 North Korean soldiers to North Korea yesterday, the somber ceremony marked the end of a period of extraordinarily tense relations between the two countries. The latest crisis was triggered last September 18, when a North Korean submarine ran aground off the South Korean coast. South Korea accused North Korea of attempting to infiltrate soldiers into South Korea at the time the incident occurred.

Tensions between the two countries mounted as South Korean army and police units carried out a massive manhunt for the North Korean infiltrators, most of whom were eventually caught and killed. For three months the crisis lingered, freezing already icy relations between the two countries, but on Sunday it was finally de-fused when North Korea publicly apologized for the incident and South Korea returned the ashes of the North Korean soldiers at yesterday's ceremony. In addition, the settlement also included a long sought after goal of the United States. For the first time, North Korea has agreed to talk directly with the U.S. and South Korea about the possibility of a treaty that would put a formal end to the Korean War.

WINSTON LORD, Assistant Secretary of State: (Yesterday) It is very important because it means for the first time the North will sit down with the South, as well as ourselves, and we would hope at some point as well, of course, the Chinese, to talk about the future of the peninsula.

CHARLES KRAUSE: Although the Korean War ended with an armistice in 1953, no formal treaty has ever been signed, and the United States still maintains nearly 40,000 soldiers in South Korea to guard against a return to open hostilities. The submarine incident in September was yet another reminder of the potential dangers for conflict as long as North and South Korea remain technically at war. But the road to peace in Korea will not be easy.

Even the latest agreement to talk about talking about a formal peace treaty took nine weeks of intense negotiations between North Korea and the United States in New York. Meanwhile, those negotiations had the unintended side effect of straining relations between the United States and South Korea, which was in no mood to deal with the North Koreans after the submarine incident. Indeed, it took a meeting between President Clinton and South Korea's President Kim Young Sam at an Asian summit meeting in Manila to put relations back on track and allow the negotiations in New York to continue.

Beyond the apology and the promised talk about a formal peace treaty, North Korea also promised as part of the agreement hammered out in New York to continue a 1994 nuclear accord that halted North Korea's nuclear weapons program. For its part, the Clinton administration said it would now consider exchanging diplomats with North Korea and would look favorably on a resumption of grain sales to the North, which is suffering from severe food shortages.

Meanwhile, booming South Korea has been nearly paralyzed for the past week by massive strikes protesting new labor laws enacted during a secret pre-dawn session of the South Korea congress from which members of the opposition party were excluded. The strikes were suspended for the New Year holiday. But they may resume again later this week.