"We are in exclusive negotiations for four BPC Mistral," Sarkozy said, standing beside President Dmitry Medvedev, referring to a class of high-tech amphibious assault ship built by France and sought by Moscow.

"This is a symbol of trust between our countries," Medvedev said. "I hope that these negotiations will be crowned by success."

Sarkozy said the first of the four ships would be built at a French naval shipyard in St Nazaire on the mouth of Loire, and that talks were continuing over where to produce the remaining three.

The prospect of French arms sales to Russia has raised concern among some of Russia's neighbours and the United States.

earlier related report
Medvedev in France backs sanctions on Iran
Russia and France launched a new era of close partnership on Monday, with the Kremlin signalling it could support targeted sanctions against Iran and France offering to sell warships to Moscow.

Russian President Dmitry Medvedev made his most explicit threat yet to act against Tehran after talks with his French counterpart Nicolas Sarkozy at the start of a major two-day diplomatic and commercial visit to France.

"Our appeals (for Tehran) to work on a peaceful nuclear programme under the control of the international community have not borne any fruit so far," Medvedev said, at a news conference alongside Sarkozy.

Medvedev insisted that Russia would still see sanctions as a last resort, but said that if no breakthrough comes in talks with Iran, "Russia is ready, together with our other partners, to consider introducing sanctions.

"These sanctions should be calibrated and smart. These sanctions should not target the civilian population," he said.

Sarkozy said he and Medvedev had also launched "exclusive negotiations" on the sale of four French warships to Russia, a plan that has alarmed the United States and some of Russia's neighbours.

The French president said selling modern helicopter carriers was a gesture of confidence in Russia as a "strategic partner" at a time France and other world powers want it to support efforts to rein in Iran's nuclear ambitions.

"How can we tell Russian leaders, 'We need you in order to make peace, in order to resolve crises in the world, such as the major Iranian crisis, but we do not trust you, we will not work with you on the Mistral BPC'?" Sarkozy said.

Both the French and Russian leaders said their countries were in talks on the sale of Mistral BPCs -- France's modern amphibious assault ships, capable of carrying helicopters, tanks and commandos.

This would be the first ever transfer of advanced military technology between a NATO member and Russia, and the possible deal has raised concern among some of members of the Western alliance.

The leaders brushed aside these concerns, with Medvedev insisting on France and Russia's "centuries old ties" and Sarkozy declaring that Paris sees Moscow as a firm friend and partner in European security.

"This is a symbol of trust between our countries," Medvedev said. "I hope that these negotiations will be crowned by success."

Medvedev flew into France with a delegation of Russia's richest businessmen. His talks with Sarkozy were to be followed by a day of meetings with French business leaders and officials.

As Medvedev arrived, French and Russian energy giants GDF Suez and Gazprom announced they had agreed terms for deals for France to take more Russian gas and invest in a Baltic pipeline.

According to the firms, the gas agreement foresees Gazprom supplying GDF Suez with an extra 1.5 billion cubic metres of gas per year through the Nord Stream pipeline.

The deal was signed at Monday evening's meeting, along with a contract for French engineering firm Alstom to take a 25 percent stake in Russia's train parts maker Transmashholding.

Meanwhile in Russia, French car firm Renault inaugurated a 150-million-euro extension to the Avtoframos car plant in Moscow and said it plans to double production to 160,000 vehicles per year.

The economic focus of Medvedev's visit was underlined by the presence of the head of Gazprom, Alexei Miller, billionaire aluminium magnate Oleg Deripaska and one of Russia's richest men, Mikhail Prokhorov, in the party.

Countries in Eastern Europe such as Poland, the Baltic states and Georgia have been alarmed by Moscow's outreach to Paris.

Their fears of Russian interference in the region were sharpened by the 2008 war between Russia and Georgia, and they have been angered by the prospect of France selling warships to Medvedev's government.

"It's not even appeasement of Russia. It's a reward for Russia," Georgian national security adviser Eka Tkeshelashvili told US magazine Foreign Policy.

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