Russia, Georgia and its separatist region of South Ossetia have agreed to resolve the dispute over the mountainous enclave peacefully, but left open the status of the territory.
The three-party agreement was signed after two days of intense negotiations behind closed doors in Moscow.
A Russian military officer said late Thursday, all sides had reaffirmed their aim to peacefully resolve the conflict through the efforts of the commission that convened the Moscow talks.
Yet even as the negotiators met, tensions continued to rise in South Ossetia, which broke away from Georgia during a brief war in 1992 with Russian support.
A series of minor clashes in recent weeks have raised fears of a wider conflict, partly due to new Georgian President Mikhail Saakashvili's stated policy of bringing various breakaway regions back under central control.
South Ossetia fought a bitter three-year battle for independence from Georgia with Russian support after the breakup of the Soviet Union, and is now effectively a Russian protectorate.
The Russian ruble is the currency of choice in South Ossetia, and most people hold Russian passports.
Alexei Malashenko, an expert on the Caucasus region at the Carnegie Center in Moscow, says nobody wants a war over Ossetia. "Moscow isn't ready for a war between Ossetia and Georgia," he said. "At the same time, Saakashvili understands very well, Georgia isn't ready for military activity, and of course it will not help the political, social, economic stabilization of Georgia."
Mr. Saakashvili swept to power last November in a peaceful revolt that ousted longtime Georgian leader Eduard Shevardnadze.
In May, the 36-year-old US educated lawyer succeeded in forcing another regional strongman from power, despite opposition from Russia.
The Georgian leader says he has no plans to invade South Ossetia, and that his main aim now is to halt widespread smuggling of contraband goods that pass through the enclave into Georgia.
The next step, Mr. Malashenko says, is for the parties to negotiate the tough issues of Ossetia's status. "The commission is not for the search of a certain final decision, but the main task of this commission is to negotiate all the time. The negotiations are needed by all sides," he said.
Under Thursday's agreement, the joint commission appointed to defuse tensions in the region will continue holding talks in the South Ossetian capital, Tskhinvali.