The United States and India have signed a controversial nuclear agreement representing a major shift in American nuclear policy.

"We concluded a historic agreement today on nuclear power," U.S. President George W. Bush said on Thursday after meeting with India's prime minister, Manmohan Singh.

U.S. President George W. Bush with Indian Prime Minister Manmohan Singh at Hyderabad House in New Delhi, Thursday. (AP Photo/Charles Dharapak)

"It's not an easy job for the prime minister to achieve this agreement, I understand," Bush added. "It's not easy for the American president to achieve this agreement, but it's a necessary agreement. It's one that will help both our peoples."

The accord calls for the United States to share its nuclear expertise and fuel with India to help power its fast-growing economy.

India won't sign the international nuclear non-proliferation treaty, while Washington imposed temporary sanctions on India in 1998 after it conducted nuclear tests.

The deal hinged on a last-minute agreement to separate India's tightly entwined civilian and nuclear programs. It was important that India open its civilian program to international inspection in a way that satisfied both sides.

A senior U.S. administration official said India classified 14 of its 22 reactors as civilian, which would subject them to international inspection. India classified the other eight as military reactors and exempt from inspection.

Bush said the deal could be good for U.S. consumers.

"It's in our economic interests that India have a civilian nuclear power industry to help take the pressure off of the global demand for energy ... To the extent that we can reduce demand for fossil fuels, it will help the American consumer."

U.S. Congress must still approve the deal, and Bush acknowledged it would be hard to persuade legislators to change decades of law that has punished countries such as India for developing nuclear weapons.

Critics say the deal undermines the Nuclear Nonproliferation Agreement. They also say it sends the wrong message to leaders of North Korea and Iran who have ignored international calls to stop their nuclear weapons programs.

Also on Thursday, a car bomb killed five people outside the U.S. consulate and Marriott Hotel in Karachi in neighbouring Pakistan, the country next on Bush's itinerary.

Bush said he would not be put off from visiting the country, a key ally in his war on terror.