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KAZAN – Azerbaijan and Armenia failed to come to an agreement on the path to peace in Nagorno Karabakh after a meeting of their leaders in Russia last Friday, but said some progress had been made.

Russian President Dmitry Medvedev hosted Azerbaijani President Ilham Aliyev and Armenian leader Serzh Sargsyan in the Volga city of Kazan, for another round of talks seeking to end the two-decade conflict over Nagorno Karabakh.

"The heads of state confirmed mutual understanding on the range of issues that contribute to the creation of the conditions for approving the basic principles [of the Karabakh settlement]," a joint statement said.

Azerbaijan and Armenia waged a brutal war in the early 1990s. About 20 percent of Azerbaijani territory, including Nagorno Karabakh, has been under the occupation of the Armenian armed forces since a fragile ceasefire was signed in 1994. Peace talks are underway on the basis of the Madrid principles, a peace outline proposed by the mediating OSCE Minsk Group’s co-chairs. The principles include the return of the territories surrounding Nagorno Karabakh to Azerbaijani control; determining the final status of Nagorno Karabakh in the future; a corridor linking Armenia to the region; and the right of all internally displaced persons and refugees to return to their homes.

But even if the document is eventually agreed, huge obstacles remain to a final peace deal.

Armenia claims that Karabakh will never again be ruled by Baku, while Azerbaijan insists that the region must remain part of its sovereign territory.

The Azerbaijani, Armenian and Russian presidents stressed that the Kazan meeting discussed the ongoing efforts to agree upon a draft of the Basic Principles.

President Aliyev and Sargsyan thanked the leaders of the countries co-chairing the Minsk Group - the U.S., France and Russia –for their "regular attention" to the Nagorno Karabakh settlement.

Aliyev and Sargsyan praised the Russian president’s personal efforts to assist in reaching agreements, the statement said.

The two enemies traded accusations after the summit, with Armenia saying that Azerbaijan had torpedoed the talks by wanting a dozen changes to the basic principles agreement and Baku saying that Yerevan was seeking to mislead the world.

Armenian Foreign Minister Eduard Nalbandyan claimed that Baku had offered about ten changes to the document on the basic principles, which prevented the Kazan meeting from being crucial for the peace process.

But Nalbandyan said peace talks would be continued and that there was no other solution to the dispute.

Azerbaijani Foreign Minister Elmar Mammadyarov said the presidents’ meeting in Kazan was "one of the longest ones held in this format".

"Discussions were held on problematic issues that are hurdles in the way of achieving progress on the conflict settlement," Mammadyarov said. "Unfortunately, we have not yet managed to reach a compromise solution to a number of issues of principle, as the Armenian side is demanding maximum concessions from Azerbaijan, distorting the premise of the negotiating process..."

Mammadyarov said that nonetheless, the presidents agreed to continue seeking ways of bringing closer the conflict parties’ positions.

Commenting on the Armenian foreign minister’s latest statement, he said Yerevan was again distorting the facts.

"For some reason the Armenian side kept silent when Azerbaijan stated that it was accepting the updated Madrid Document, submitted by the OSCE Minsk Group co-chairs in Athens in 2009. And now, Armenia is talking about just one of the many versions of the working document that is based on the updated Madrid Document.

"I would like to recommend Armenia’s foreign ministry not to engage in PR, but to work hard on changing the negative status quo [in the conflict resolution] that has shaped, which the leaders of the Minsk Group co-chairing countries have called for," Mammadyarov said.

"In conclusion of the presidents’ meeting I had an impression that the presidents intend to work hard in this direction."

A day after the Kazan meeting, on Saturday, OSCE chairman, Lithuanian Foreign Minister Audronius Azubalis, stressed the importance to continue the efforts towards reaching a comprehensive peace settlement on Nagorno Karabakh.

"I welcome the efforts in reaching common understanding on a number of issues whose resolution will help create the conditions for approval of the Basic Principles. I hope the work to address the outstanding issues will be continued, to pave the way towards resolving the conflict," Azubalis said.

Azubalis emphasized the need for strengthening the ceasefire regime and for further confidence-building measures with involvement of the civil society as discussed during his meetings with the leaders of Azerbaijan and Armenia in March.

"I encourage the leaders to follow through on the agreements made in the previous tripartite meetings in Astrakhan in October 2010 and in Sochi in March this year, including to investigate possible incidents on the Line of Contact [of the two countries’ troops] and refrain from the threat or use of force," he said.

However, both Armenia and Azerbaijan are rapidly arming themselves amid the ongoing peace talks.

Azerbaijani lawmaker and analyst Rasim Musabayov says Azerbaijan currently has a more powerful military than Armenia. Musabayov did not rule out that the arch-foe nation understands that if Azerbaijan continues to strengthen its armed forces, soon -- in about a year -- it will face dire challenges in withstanding its military power.

"In other words, before Azerbaijan’s [potential] attack, they may instigate armed conflict themselves," the analyst said. "In my view, Russia understands that if Azerbaijan surpasses Armenia both in terms of demographics and economically and is developing its military quite vigorously, Moscow may be faced with a very difficult choice. It [Russia] will have to either stay away, in which case Azerbaijan will simply crush Armenia, while the latter will completely turn away from Russia, or it will have to interfere and side with Armenia, in which case Azerbaijan will take a stance towards Russia similar to the one Georgia adheres to. And, considering that Armenia is isolated [from the outside world], this would be tantamount to Russia’s absolutely losing its ground in the region."

Prior to the Kazan meeting, both the co-chairing countries and the conflict parties made statements urging to sign an agreement on the basic principles of the conflict settlement during the Kazan summit.

US President Barack Obama last Thursday called on the leaders of Azerbaijan and Armenia to take "crucial" steps to move forward a settlement to the Nagorno Karabakh conflict during their talks the following day.

In a phone conversation with his Azerbaijani counterpart Ilham Aliyev, Obama stressed the importance of resolving the long-standing dispute based on the Helsinki Final Act principles of non-use-of force, territorial integrity of states and self-determination of nations, Aliyev’s press service said.

Obama spoke over phone with Armenian leader Serzh Sargsyan as well. He said he attached great importance to the Kazan talks and emphasized the significance of reaching progress at the meeting.

Sargsyan said both Armenia and the Armenian population of Nagorno Karabakh, an Azerbaijani region where separatists are running a self-proclaimed republic, are trying to achieve a peaceful and fair solution of the Karabakh conflict. He added that if Azerbaijan shows "a constructive approach" at the Kazan meeting, positive outcomes should be expected.

French President Nicolas Sarkozy said it was time to adopt the principles of Karabakh settlement that would allow to launch key talks on resolving the dispute.

In a letter sent to President Sargsyan ahead of the Kazan meeting, Sarkozy wrote that "there comes a time in history when leaders have to show their people the road to peace, courage and wisdom". "And that’s the point that the process of Nagorno Karabakh conflict settlement has reached," the letter said, according to Sargsyan’s press service.

The OSCE Minsk Group’s US co-chair Robert Bradtke had said Azerbaijan and Armenia were at a crucial stage in the settlement of the Karabakh conflict.

"In my view, this is the most important stage in negotiations since 2001 when efforts were made to reach a peace agreement in Key West," Bradtke was quoted by Armenia’s Azatutyun (Liberty) radio station as saying ahead of the presidents’ talks.

Speaking to a news briefing at the US embassy in Moscow, Bradtke recalled the recent statement issued in Deauville by the leaders of the Minsk Group co-chairing countries urging to "take a decisive step" towards a peaceful settlement and to finalize the basic principles of a peace agreement during the Kazan summit.

"The basic principles are not a peace accord," Bradtke commented. "This is a five and a half-page framework document consisting of 14 clauses which is a guideline for the conflict parties on how they should negotiate to reach a solution. It is a guideline for the ministers on how to formulate key issues to reach a final peace accord."