Obama, Castro discuss ties, to meet at summit as detente takes hold

(Reuters) - U.S. President Barack Obama and Cuban President Raul Castro have talked by telephone about restoring diplomatic ties and will meet informally at a summit this weekend as they seek to set aside decades of hostility between two Cold War enemies.

The historic rapprochement is set to dominate the Summit of the Americas meeting in Panama, less than four months after a landmark announcement by Obama and Castro that they would seek to improve relations and boost trade and travel.

The two leaders spoke by phone on Wednesday before Obama left Washington and discussed the process of resuming formal diplomatic relations and opening embassies, the White House said.

They have separate agendas for most of the day but will both attend the start of the summit along with other regional leaders on Friday evening.

The pair are expected to meet on Saturday, said Ben Rhodes, Obama's deputy national security adviser. "We certainly do anticipate that they will have an opportunity to see each other at the summit tomorrow, to have a discussion," he said.

Apart from a couple of brief, informal encounters, the leaders of the United States and Cuba have not had any significant meetings since Castro's older brother, Fidel Castro, toppled U.S.-backed dictator Fulgencio Batista in a 1959 revolution that soon steered the Caribbean island into a close alliance with the Soviet Union.

U.S. Secretary of State John Kerry and Cuban Foreign Minister Bruno Rodriguez held talks at a Panama City hotel on Thursday night, the first meeting between the two countries' top diplomats since the United States' John Foster Dulles and Cuba's Gonzalo Guell got together in Washington in 1958.

Sitting face-to-face in a room visible through a large glass window, Kerry and Rodriguez talked for over two hours. A senior U.S. State Department official described it as a "lengthy and very constructive discussion" and said they made progress.

Obama, who visited the site of a massive expansion of the Panama Canal by helicopter on Friday morning, appears to be close to removing Cuba from a U.S. list of countries that it says sponsor terrorism.

The designation includes a series of automatic U.S. sanctions. Cuba has cited its continued inclusion on the list as a hindrance to the planned restoration of full diplomatic ties and the opening of embassies that Obama and Castro announced last December. Washington broke off diplomatic relations with Cuba in 1961.

STATE DEPT. RECOMMENDS REMOVAL FROM LIST

The State Department has now recommended that Cuba be taken off the list, a U.S. Senate Foreign Relations Committee aide said on Thursday. Obama is expected to agree, although it is not clear whether he will announce his decision during the summit.

A U.S. official said Kerry and Rodriguez used their meeting to smooth the way for Cuba's removal from the list. The United States has pushed for Cuban assurances of no future support for terrorism, and Cuba has made the same demand of Washington.

In his break with Washington's long tradition of trying to force change in communist-run Cuba by isolating it, Obama has said it is time to try a new approach. He has already used his executive authority to ease some trade and travel restrictions.

But only Congress, controlled by Republicans, can remove a decades-old U.S. economic embargo on the island and the rapprochement by Obama, a Democrat, has met some resistance in Washington.

And while the U.S. president's policy has been widely praised around Latin America, this was tempered last month when his administration imposed sanctions on Venezuela, Cuba's closest ally and main benefactor.

That controversy now hangs over the summit, which ends on Saturday. Kerry's counselor, Thomas Shannon, was in Venezuela earlier this week in an apparent bid to ease tensions.

Venezuelan President Nicolas Maduro says he will present Obama with a petition signed by millions of people demanding that the sanctions be reversed. He is certain to receive support from Castro and other left-wing leaders in Latin America.

(Additional reporting by Jeff Mason, Roberta Rampton and Dave Graham; Editing byKieran Murray, Simon Gardner and Frances Kerry)