By Andrew Heavens

KHARTOUM (Reuters) - Sudan exchanged ambassadors with Chad on Sunday in the strongest sign of reconciliation since the neighbours cut diplomatic ties over an attack on Khartoum six months ago.

An African Union delegation said an improvement in relations between the two countries was a key foundation to any peace efforts in Darfur, which is on the Sudan-Chad border. But it said many agreements had failed in the past.

Sudan cut diplomatic relations with Chad in May after an attack on the Sudanese capital by Darfur rebels that the Sudanese government said was supported by Chadian President Idriss Deby.

Chad, which has also accused Sudan of backing rebel attacks on its own capital N'Djamena, closed its eastern border in response.

Sudanese President Omar Hassan al-Bashir first agreed to restore diplomatic ties with Chad during a conference in Senegal in July but the current breakthrough was brokered at a recent meeting in Libya.

Chad's ambassador to Sudan, Baharadine Haroune Ibrahim, flew to Khartoum on Sunday afternoon and Sudan said its envoy was due to fly to N'Djamena in the near future.

The relationship between the two countries has been complicated by Sudan's festering Darfur conflict. Many of the conflict's rebel forces come from cross-border tribal groups and there are tribal links between Chadian leaders and prominent Darfur rebel figures.

"The tensions have been an obstacle in efforts to try and solve the Darfur crisis," said Pierre Buyoya, heading an African Union mission to Sudan.

"This problem has to be solved then to create the condition to solve the big issue of Darfur. If not, it will be impossible to have a solution in Darfur."

He said he thought both Chad and Sudan were serious about rebuilding relations.

"But it is very difficult. The level of mistrust is very deep."