UN leader Ban Ki-moon on Tuesday called for the end of the threat of sanctions against Iraq for its 1990 invasion of Kuwait amid a significant thaw between the neighbors.

Ban said both governments have shown "statesmanship and respect" in healing the scars of the invasion that led to the creation of an international coalition to expel Saddam Hussein's forces.

"The command ground attained by Iraq and Kuwait regarding the issues of missing Kuwaiti persons and property is a significant achievement, signalling a new level of trust and a fresh chapter in the relations between the two neighboring countries," Ban said in a report to the UN Security Council.

He called on the 15-nation council to lift the threat of sanctions or force under Chapter VII of the UN Charter. The council is to discuss the Iraq-Kuwait regime next week.

Iraq has so far paid about $30 billion of the $41 billion in war reparations it was ordered to hand over for the seven month occupation which ended in 1991. Iraq hopes to complete the payments in 2015.

Regular flights between Baghdad and Kuwait started this year and Kuwait's Prime Minister Sheikh Jaber Mubarak al-Sabah went on a surprise one day visit to Baghdad last week in a key sign of the thaw.

Kuwait is maintaining demands that Iraq account for more than 600 Kuwaitis who went missing in the conflict. The remains of 236 have so far been found. It is also demanding efforts by Iraq to return national treasures and archives.

But the Kuwaiti government has agreed to an end to the UN sanctions threat ordered in Security Council resolution 661 passed in 1990.

Ban said the unsolved cases of missing people "continue to cause suffering to the bereaved families." But he added that Iraq has shown "commendable commitment" to resolving the cases.

"Should the Security Council agree with my recommendations, Iraq will exit Chapter VII with regard to this file and and will be one step closer to restoring its standing priority to resolution 661."

Saba Khalid al Hamad as-Sabah, Kuwait's foreign minister and deputy prime minister, supported Ban's call in a letter to the United Nations.

Under Ban's plan, a high level coordinator who has been bringing together the two countries would stop work and the duties on the hunt for the missing persons and archives would pass to the UN mission in Iraq.