Benazir Bhutto and Nawaz Sharif, both living in exile, signed a three-point agreement in the Saudi Arabian city of Jeddah, where Sharif is currently residing. It was their first ever meeting as opposition leaders, the BBC reported.
Bhutto has been in self-imposed exile - shuttling between Dubai and London - since being ousted by the military in 1996.
Their pact called for the restoration of democracy in Pakistan, an independent election commission and respect for popular mandate. The two have been campaigning against President Gen. Pervez Musharraf.
Ahsan Iqbal, former federal minister and leader of Sharif's Pakistan Muslim League, said the agreement was reached after a three-hour meeting.
Iqbal said the two leaders also agreed to set up working groups within their respective parties to draw up a wide-ranging charter for democracy.
Observers in Pakistan were attaching significant importance to the meeting, the BBC said. Bhutto and Sharif and their parties have been opposing the government of Musharraf under the umbrella of the Alliance for the Restoration of Democracy.