Cuba Foreign Minister Felipe Perez Roque and EU Commissioner for Development and Humanitarian Aid Louis Michel signed a declaration pledging new cooperation in what Michel called "a turning point for EU-Cuban relations."
The agreement calls for the two sides to look for ways to work together in areas such as trade, the environment, science and technology.
The European Commission, executive body of the 27-nation EU, said in a statement it may invest 20 million to 25 million euros in joint projects. It also said it would give Cuba 2 million euros to aid recovery from recent hurricanes Gustav and Ike.
The EU imposed diplomatic sanctions in 2003 after Cuba imprisoned 75 presumed opponents of the communist-led government. About 55 are believed to still be in jail.
The EU voted in June to lift the sanctions in hopes of encouraging reform in Cuba after Raul Castro earlier replaced ailing brother Fidel Castro as president, but said it would also annually review human rights on the Caribbean island 90 miles (145 km) from the United States.
Cuba has said it will not allow EU interference in domestic issues, but has agreed to reinstate official political dialogue that was one of the casualties of the EU sanctions.
The Cuban government considers political prisoners to be mercenaries working at the behest of the United States, which openly supports the dissidents.
Perez Roque said on Thursday there has been "an important advance" in EU-Cuba relations but that "there remain things to do and rectify."
"What appears most important to us is that this dialogue can approach all these issues, including the issues most difficult, but always over a base of mutual respect," Michel said to Perez Roque in their signing ceremony in Havana.
The United States has imposed a trade embargo against Cuba for 46 years and U.S. Commerce Secretary Carlos Gutierrez said this week the American government was not likely to follow the EU down the path of engagement with its long-time foe.
"To the best of our knowledge there are still political prisoners dying in jail, people still don't have freedoms so I don't know why anyone would say that any other strategy appears to be working. Nothing has changed," he told Reuters.
(Reporting by Nelson Acosta, Esteban Israel and Jeff Franks in Havana and Ingrid Melander in Brussels; editing by Jeff Franks and David Wiessler)
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