Zimbabwe's President Robert Mugabe signed a power-sharing agreement with opposition rival Morgan Tsvangirai on Monday, relinquishing some of his powers.

The deal followed weeks of tense negotiations to end a deep political crisis compounded by the veteran leader's disputed and unopposed re-election in a widely condemned vote in June. Under the agreement, Tsvangirai will become prime minister.

'This agreement sees the return of hope to all our lives. It is this hope that provides the foundation of this agreement that we sign today, that will provide us with the belief that we can achieve a new Zimbabwe,' Tsvangirai said after the signing ceremony.

Zimbabweans hope the agreement will be a first step in helping to rescue the once prosperous nation from economic collapse. Inflation has rocketed to over 11 million percent and millions have fled to neighbouring southern African countries.

Cheers greeted the signing of the deal at a Harare hotel by Mugabe, Movement for Democratic Change (MDC) leader Tsvangirai and Arthur Mutambara, who leads a breakaway faction of the main opposition party.

The three smiling Zimbabwean leaders exchanged copies of the agreement and shook hands in front of South African President Thabo Mbeki, who brokered the deal, and other African leaders.

Mugabe, 84, made clear he would not tone down his attacks on Western countries such as former colonial power Britain. he accuses them of supporting the opposition in a bid to drive him from power.

'African problems must be solved by Africans...the problem we have had is a problem that has been created by former colonial powers,' Mugabe said after the signing ceremony as Tsvangirai looked uncomfortable.

But he added: 'We are committed to the deal, we will do our best'.

Western countries are still keen to see how the deal works in practice but the European Union said on Monday it stood ready to bring aid to Zimbabwe if the new government took measures to restore democracy and the rule of law.

British Foreign Secretary David Miliband welcomed the agreement but said its details would be studied carefully.

'The new government needs to start to rebuild the country. If it does so, Britain and the rest of the international community will be quick to support them,' Miliband said in a statement.

Under the deal agreed last week, Tsvangirai will become prime minister and chair a council of ministers supervising the cabinet. Mugabe, who has ruled since independence from Britain in 1980, will remain president and head the cabinet.

The deal is expected to split control of the powerful security forces that have been key backers of Mugabe.

The president, a former guerrilla commander, is likely to keep command of Zimbabwe's strong army, but the MDC wants to run the police force. Mugabe's ZANU-PF will have 15 cabinet seats, Tsvangirai's MDC 13 and a splinter MDC faction three seats.

Analysts say the power-sharing deal is fragile and will require former enemies to put aside their differences and work closely to overcome scepticism, especially from Western powers whose financial support will be vital for recovery.

ZANU-PF and MDC negotiators met early on Monday to allocate the 31 ministries. Names of the ministers are likely to be announced later in the week, a government official said. There would also be a national security council, replacing a joint operations command of security service chiefs. The opposition says they were instrumental in organising a campaign that intimidated the opposition into standing down for the presidential run-off, allowing Mugabe to retain power. - Reuters