The US president, Barack Obama, and Dmitry Medvedev, the Russian leader, today signed an arms treaty that will slash their respective nuclear arsenals by a third.

US President Barack Obama with his Czech counterpart Vaclav Klaus (C) and Russian President Dmitry Medvedev at Prague Castle. Obama has met with Medvedev before the two sign a treaty slashing their countries' nuclear arsenals. (AFP/Jewel Samad) The two men shook hands to applause after signing what Obama called a historic agreement in the opulent setting of Prague castle in the Czech Republic. Obama said the new agreement made the US and the world more secure and helped stopped the drift in US-Russia relations.

"Together we've stopped that drift," Obama said, adding that the agreement was a "milestone for US-Russia relations".

He acknowledged, however, that the new agreement was "just one step on a longer journey" and said it has set the stage for further cuts. There was also a stern message for Iran as Obama said the world would not tolerate actions from countries that flouted the nuclear non-proliferation treaty and threatened collective security. Medvedev echoed Obama's concerns, saying that the world could not turn a blind eye to Iran, which he said had not responded to "many constructive proposals". He hinted that Russia would be open to further sanctions against Tehran.

The new treaty will cut American and Russian strategic nuclear warheads to 1,550 over seven years, about a third less than the 2,200 currently allowed.

Obama returned to Prague one year after he outlined his vision before an enthusiastic crowd for a world without nuclear weapons. The speech helped him win the Nobel peace prize, but Obama has acknowledged that eliminating nuclear weapons is unlikely to be achieved during his lifetime.

The agreement to reduce nuclear warheads by a third succeeds the 1991 strategic arms reduction treaty (Start), which expired in December. It will have to be ratified by the US Senate - where conservative Republicans can be expected to give it a rough ride - and the Russian parliament.

In addition to the warhead limit, the US and Russia must cut their total land, sea and air-based launchers to 800 each, and no more than 700 actually deployed within seven years. While that will leave plenty of nuclear weapons to destroy the world several times over, it marks a big drop from the total of 19,000 strategic warheads both sides deployed during the cold war.

Obama wants to move for even deeper cuts but faces Russian reluctance because of American plans to build a missile defence system in Europe to counter a possible Iranian threat. Russia argues that antiballistic missile systems could neutralise its smaller arsenal.

Even as Obama pushes for deep cuts in nuclear weapons, the Washington Post reported that the Pentagon is developing a weapon to plug the gap left by nuclear warheads: missiles armed with conventional warheads that could strike anywhere in the world in less than an hour. US military officials say the intercontinental ballistic missiles, known as prompt global strike weapons, are a necessary new form of deterrence against terrorist networks.

Obama will have to balance his desire for deep cuts against the more immediate goal of keeping Russia on side to ratchet up the pressure on Iran and its suspected nuclear weapons programme. The US is seeking another round of sanctions against Tehran and Obama is also courting support from China, which recently signalled its willingness to adopt a tougher line towards Iran.

Obama's trip to Prague is part of an intensive round of nuclear diplomacy. On Tuesday, the US released the results of a comprehensive nuclear strategy review in which the US committed itself for the first time not to use nuclear weapons against non-nuclear states provided that they are party to the nuclear non-proliferation treaty and in compliance with their nuclear non-proliferation obligations - a caveat that excludes North Korea and Iran.

Next week, Obama welcomes to Washington the leaders of 46 countries, including the Chinese president, Hu Jintao, for a summit meeting on nuclear security.