UPDATE 1-France, Britain agree drone cooperation
* Paris, London to work on next-generation drones, combat jets
* Leaders appear to lay to rest recent euro zone squabbles
By John Irish and Emmanuel Jarry
PARIS, Feb 17 (Reuters) - France and Britain agreed on Friday to jointly work to develop next-generation unmanned drones as part of their military cooperation as their leaders reconciled after an acrimonious clash over Europe last year.
President Nicolas Sarkozy and Prime Minister David Cameron appeared to lay to rest their dispute at the height of the euro zone crisis which saw the annual Franco-British summit postponed, and sought to coordinate on issues ranging from Syria to Iran and the European Union.
"There is a letter of intent for the long-term," French Defence Minister Gerard Longuet told Reuters after the summit.
"We are working together for the medium-altitude long-endurance (MALE) drone and we are thinking together what the future combat drone should be."
Longuet said France's Dassault Aviation and British defence contractor BAE Systems would develop the unmanned aircraft, also known as UAVs (unmanned aerial vehicles), used for reconnaissance and attack missions.
The two companies would also start work on a next-generation unmanned fighter jet, he said.
In November 2010, Sarkozy and Cameron signed a defence and security cooperation treaty to increase coordination between their countries' armed forces and co-develop equipment.
With the exception of the war in Libya when the two countries' militaries worked together to degrade the forces of Muammar Gaddafi, the relationship has focused more on commercial arms deals rather than on coordinating strategy.
In Britain, greater military collaboration with France is seen as a way of maintaining defence capability while slimming down the armed forces to save money.
The two nuclear powers also said they would strengthen bilateral nuclear safety cooperation, announcing contracts worth about 500 million pounds ($790 million) between Rolls Royce , Areva and EDF.
The agreement would develop nuclear power plants in Britain that could create 1,500 jobs.
Sarkozy, who this week announced he would seek re-election in April's presidential vote, and Cameron have had a tense relationship in the past few months after a public spat over London's veto of a treaty on euro zone fiscal integration in December.
Sarkozy's terse explanation in Brussels of the decision to leave Britain out of plans backed by 25 other European Union members was at odds with the chumminess he built up with Cameron over their mission to help Libyan rebels oust Muammar Gaddafi.
"When you look across at the foreign policy and defence issues that we discussed today, I don't think that there has been as close Franco-British cooperation since WW2," Cameron told reporters.
Sarkozy showed genuine friendship in September by lending Cameron a helicopter so he could rush to the bedside of his father, who had suffered a fatal stroke in southern France.
But in October he snapped at him during euro crisis talks in Brussels, suggesting he "shut up" and stop interfering.
"I always thought the "Entente Cordiale" (cordial agreement) should become the "Entente Amicale" (friendship agreement)," Sarkozy said.