The two countries agreed to initiate talks on FTA and to sign an Early Harvest Agreement to bring the two countries further closer.
They agreed to increase the number of flights to strengthen people-to-people contact, enhance frequency of bilateral visits and to encourage joint ventures between private and public sectors.
The Bahrain Premier, who arrived late in the evening, drove straight to the Prime Minister house, where Shaukat Aziz received the distinguished guest for a formal welcome ceremony.
The two Prime Ministers, later, witnessed the signing of agreement on avoidance of double taxation and a memorandum of understanding (MoU) on economic, trade and technical co-operation.
Prime Minister Shaukat Aziz expressed the hope that the first ever visit by his Bahraini counterpart would help to enhance mutually beneficial relations between the two countries.
He said Bahrain was an important country of the Gulf Co-operation Council (GCC) and its geographical location had enhanced the country's significance manifold.
Shaikh Khalifa bin Salman al-Khalifa expressed appreciation for President General Pervez Musharraf and Prime Minister Aziz for leading the country on the road to development, particularly their efforts for improving the economy that registered 8.4 percent growth during the current fiscal year.
He also lauded Pakistan's role as a frontline state in the ongoing war on international terrorism and President Musharraf's vision of enlightened moderation to bridge the widening gap between Islam and the West.
The Bahrain Prime Minister also welcomed the ongoing dialogue between Pakistan and India as a "positive development" for the peace and stability-in the region.
He lauded the role of over 45,000 Pakistani expatriates in the development of Bahrain and hoped they would continue to contribute toward increasing trade and commercial linkages between the two countries.
Shaikh Khalifa said Bahrain considers Pakistani people as brothers, who played a key role in the country's progress and development.
Bahrain was keen to import more manpower from Pakistan, he added.
Prime Minister Shaukat Aziz said Pakistan was interested in seeking co-operation from Bahrain in Islamic Banking and to benefit from experiences of its financial sector.
He urged Bahrain entrepreneurs to explore investment opportunities in Pakistan, which offer a level playing field to both local and foreign investors.
Prime Minister Shaukat Aziz apprised his counterpart of Pakistan's relations with India and efforts for peace in the region. He said Pakistan sees itself as anchor of peace in the region.
He said the two countries were making progress and relations were moving in the right direction.
Both countries agreed on the need of a peaceful resolution of decades-old Kashmir dispute in line with the wishes of the Kashmiri people for durable peace in South Asia, he added. They agreed to continue co-operation in counter-terrorism efforts and security issues.
The two leaders also discussed the need to restructure and revitalise the Organisation of Islamic Conference (OIC) to play its effective role in addressing challenges facing the Ummah.
In this respect, the Bahrain Premier noted that President Musharraf's vision of enlightened moderation enjoys support of the OIC.
Prime Minister Shaukat Aziz conveyed greetings by President Musharraf for Hamad bin Esa, the King of Bahrain.
The Bahrain Premier also conveyed the greeting by the King for President Musharraf.
He invited Prime Minister Shaukat Aziz to visit Bahrain, dates of which will be decided by the two foreign offices through diplomatic channel
The Prime Minister, earlier, personally received his Bahraini counterpart as a special gesture when he arrayed at Islamabad international airport. A 19-gun salute was presented to the Bahraini Prime Minister as he alighted from his special plane.