Kuwait is seeking to exploit its position as gateway to Iraq after the Gulf Arab state stepped up diplomatic ties with Baghdad, opening the way for companies to play a leading role in reconstructing its larger neighbor.

Top executives of Kuwaiti companies and experts told the Reuters Middle East Investment Summit they were setting their eyes on Iraq after Kuwait sent its first ambassador since 1990 and security is improving.

Sandwiched between Iraq and Saudi Arabia, Kuwait is the main gateway to Iraq from the south, and the US military moves thousands of soldiers and most of its supplies for operations in Iraq through the small neighbor.

The Iraqi capital of Baghdad is also closer to Kuwait City than to Amman in Jordan, to the southwest.

Kuwait's prime minister Sheikh Nasser Al-Mohammad Al-Sabah is expected to visit Iraq soon, which could pave the way for more deals for Kuwaiti companies spreading out of their home market.

Commercial Bank of Kuwait, the country's third-largest lender by market value, is in talks with a Kuwaiti investment firm to buy an unnamed Iraqi lender, chairman Abdulmajeed Al-Shatti told the summit.

'Iraq is always on our agenda,' Shatti said.

Smaller rival Burgan Bank just bought a stake in Baghdad Bank as part of plans to expand and diversify income.

Meanwhile, Kuwait's Agility, the Gulf's biggest logistics firm, is setting up platforms in Iraq, betting goods will have to be moved when investors flock to the country after the security situation improves further.

'When the security situation improves we will have more local partners to develop the business in Iraq. I think you can see it happening now,' Agility chairman Tarek Sultan said.

His company has supplied US troops in Iraq since the US-led toppling of Saddam Hussein in 2003.

Agility also wants to buy further into the Iraqi telecoms industry where Kuwait's biggest cell operator, Mobile Telecommunications Co (Zain), is already a big player.

'If they have more stability, I think that Kuwait is in an excellent position to have an advantage from its (location),' said Amani Bouresli, a finance professor at Kuwait University.

Bitterness

Despite the expansion plans, many Kuwaitis still feel bitter about Saddam Hussein's 1990-91 invasion, with parliament opposing government plans to waive Iraq's huge debt.

Relations between the neighbors have been slow to develop with Kuwait only last month sending its first ambassador to Baghdad since 1990, while Iraq keeps pressing Kuwait to cancel the debt and compensation for the invasion.

'In 2003, we were benefiting a lot in the beginning but now it is less and less. The Iraqi government and the Kuwaiti government should settle their problems to enhance economic cooperation between the two parties,' said Naser Al-Nafisi, general manager at Al-Joman Center for Economic Consultancy.

Kuwait has been trying to boost cooperation by planning a multi-billion dollar project to reshape the north bordering Iraq and building a container port on Boubiyan island south of Iraq.

The major oil exporter also plans to invest $132 billion in building a city in the north and a rail link to Iraq.

'We are waiting for see these projects in real life,' said Nafisi. 'There is a lot of talk. If we saw 50 per cent of this, it's enough.'-Reuters