India and Iceland Tuesday decided to open up air traffic to give a boost to tourism, trade and people-to-people contacts between the two countries.

The two sides signed a memorandum of understanding and initialled an Air Services Agreement that details what are known as the "5th and 6th freedom rights" that allow direct and transit flights between the two nations, as well as code sharing arrangements.

The documents were signed by the Indian ambassador here in the presence of visiting Indian President A.P.J. Abdul Kalam after delegation level talks between the two sides at the office of Iceland's Prime Minister Halldor Asgrimsson.

The Air Services Agreement will now go to the cabinet for clearance.

Once the cabinet clears the agreement, airlines of the two countries will consider the commercial viability of air services and decide on when and how to start direct flights.

Kalam is in Iceland on the third leg of a fortnight-long, four-nation tour that has already taken him to Russia and Switzerland. He will leave for Ukrauine Wednesday, before returning to New Delhi June 4.