Athletes joined the welcome for the Eritreans
The first high-level Eritrean delegation in decades has reached Ethiopia for a visit which could ease decades of military tension.
Eritrea won independence from Ethiopia in 1993 after a 30-year conflict - but a border war five years later killed tens of thousands.
Diplomatic ties have been cut between the two countries for almost 20 years.
Last week, Ethiopia's prime minister said he would accept a peace deal awarding Eritrea disputed territory.
The deal, agreed by a border commission in 2002, had never formally been accepted by his country.
Abiy Ahmed became prime minister after his predecessor resigned in February, and has enacted a series of reforms since.
On Sunday, a political rally he attended was hit by a grenade blast which killed two people and injured dozens, though Mr Ahmed was uninjured.
The Eritrean delegation, led by Foreign Minister Osman Saleh, was greeted by the prime minister in Addis Ababa, where a red carpet was rolled out and the visitors were offered garlands of flowers.AFPEthiopia's PM Abiy Ahmed, left, greets Eritrea's Foreign Minister Osman Saleh
Ethiopian elders, religious figures and traditional dancers were all part of the welcoming committee.
In the streets of the capital, a poster showing both flags together with a message of welcome hung from buildings.
Writing on Twitter, Mr Ahmed's chief of staff said the prime minster "hopes the visit will lay the foundation for a much brighter future for Ethiopia [and] Eritrea".
"It is wonderful to see Eritrean delegation in Ethiopia," one Eritrean man living in Nairobi told the BBC.
"I can't explain my emotions. I am happy to be alive to witness the peace process resuming," Deacon Daniel Bahlbi said.
"Of course there are many problems in both countries and if this situation is solved amicably, all of us will benefit."AFPThe main street in the disputed town of Badme, over which the war was fought
The peace agreement of 2000 calls for the end of hostilities between the two countries and to respect the ruling of the UN border commission, which delivered its verdict in 2002.
Ethiopia struggled to accept the decision, however, when the proposed border awarded Eritrea disputed territories that included the town of Badme - a key site in the 1998-2000 border war.
The effect of the continuing dispute has been that both nations remained prepared for war for almost 20 years.
Border skirmishes - involving both national forces and rebel groups - have continued sporadically ever since, while Badme has remained under Ethiopian administration.
Eritrean officials visit Ethiopia for first time in 20 years