Putin told Bush he would not seek to retarget Russian missiles on Europe if the United States agreed to put the system in the central Asian nation of Azerbaijan, a former Soviet republic.

Bush's called Putin's idea an "interesting proposal — let's let our experts have a look at it," according to White House National Security Adviser Steve Hadley. Hadley was in their hourlong meeting on the sidelines of a summit of the world's eight major industrialized democracies.

Bush has proposed putting the radar and rockets in the Czech Republic and Poland. After weeks of increasingly acrimonious rhetoric from Moscow about the new shield, Putin's proposal to put the system in Azerbaijan was a surprise.

Putin said the facility, built during Soviet times, is still available for Russia's use under a continuing agreement between Russia and Azerbaijan.

Appearing together before reporters, the president spoke before Putin and did not mention the alternative presented by his Russian counterpart. He only said that Putin "had some interesting suggestions."

The two leaders agreed to further discuss the issue during two days of talks beginning July 1 in Kennebunkport, Maine, at the Bush family's oceanfront compound. Lower-level officials in both governments also plan to explore it.

"We both agreed to have a strategic dialogue," Bush said. "This is a serious issue."

The Russian leader said the proposed relocation would alleviate Russia's concerns about a missile shield based on its doorstep in Eastern Europe.

"This will make it unnecessary for us to place our offensive complexes along the border with Europe," Putin said.

He laid out several other conditions, as well:

—Taking Russia's concerns into account.

—Giving all sides "equal access" to the system.

—Making the development of the system transparent.

"Then we will have no problem," the Russian leader said.

He also warned the United States not to go ahead with building the system as planned while negotiations with Moscow take place.

"We hope these consultations will not serve as cover for some unilateral action," Putin said.

He argued the benefits of his suggested substitute: An Azerbaijan-based system would cover all of Europe rather than just part of it and destroyed missile debris would fall in the ocean rather than on land.

Hadley did not rule out the possibility that the end result would be some mix of the Russian and the U.S. proposals.

"We asked the Russians to cooperate with us on missile defense, and what we got was a willingness to do so," Hadley said after the Bush-Putin meeting.

Both sides portrayed the idea — far from becoming a reality — as proof that the U.S.-relationship has not fallen so far as people have speculated amid the dispute. The leaders said they agreed that Iran and the suspicions that it is developing a nuclear weapon is the threat to focus on, not each other.

"We have an understanding about common threats, but we have differences," Putin said.

He declared himself "satisfied with the spirit of openness" he encountered in Bush. The U.S. president said they had demonstrated they share "the desire to work together to allay people's fears."

The two leaders, locked for weeks in a testy dispute over the shield, appeared friendly as they spoke on the grounds of the upscale resort here where the summit is being held. They stood so close they often touched.