Eritrea's President Isaias Afwerki is visiting Ethiopia for the first time since the start of the two countries' border war in 1998.
The three-day visit aims to cement ties just days after the two neighbours declared their "state of war" over.
Mr Afwerki was welcomed on arrival by Ethiopia's Prime Minister Abiy Ahmed.
Thousands of people, many waving Eritrean flags, lined the streets of the Ethiopian capital, Addis Ababa, to mark the historic visit on Saturday.
Mr Afwerki, whose visit is the latest in a string of moves towards reconciliation between Africa's erstwhile bitter enemies, was also greeted by dozens of traditional Ethiopian dancers while a brass band performed for him as he walked the red carpet.
Along the main road from the airport, thousands of Ethiopians gathered to celebrate with both Ethiopian and Eritrean flags waved side-by-side.
Speaking at a lunch hosted by Mr Abiy, Mr Afwerki said history was being made following an agreement that will see diplomatic and trade relations restored and lead to the resumption of flights between the two countries.
"Words cannot express the joy we are feeling now," he said.
Last week Mr Abiy travelled to Eritrea's capital, Asmara, where the two leaders signed a pact formally ending the state of war while agreeing to re-establish diplomatic and trade ties after two decades of hostility.
Since taking office in Ethiopia in April, Mr Abiy has announced a series of reforms, and spoken of mending ties with Eritrea.
An improved relationship between the two could also see the reunification of families who have been divided by the conflict.
Why is this a big deal?
The two countries have been in a state of "no war, no peace" since 2000, when a peace deal ended a war in which tens of thousands of people were killed.
A border commission set up under the peace agreement ruled that the town of Badme, the flashpoint for the conflict, was part of Eritrea but Ethiopia refused to accept this and so normal relations were never resumed.
The two leaders have now committed to fully implementing the commission's decision.
The rivalry affected the whole region.
The countries took rival sides in Somalia's long conflict - Eritrea was accused of backing Islamist groups, while Ethiopia, a US ally, supported the internationally recognised government.
Until now, Eritrea has said that war could resume at any time and this is why it has national conscription, or compulsory military service, which could last indefinitely. It is one of the main reasons why so many Eritreans try to leave the country and seek asylum in Europe.
Mr Afwerki's visit is a remarkable turnaround for the 72-year-old independence leader who has been isolated diplomatically and seen as secretive and paranoid.
Why is this happening now?
As well as his overtures to Eritrea, Mr Abiy has lifted a state of emergency, freed political prisoners and announced economic reforms.
He inherited a country that has seen some of the fastest economic growth in the world in recent years, but has also been riven by years of protests by people who feel marginalised.
The previous government was accused by many of human rights violations - including torture and extrajudicial killing of political dissidents.
Mr Abiy is the country's first Oromo leader - the ethnic group at the centre of nearly three years of anti-government protests, which have left hundreds of people dead.
What will change?
Along with diplomatic and trade ties, transport and telephone links will also be re-established.
The first flights between the two countries in two decades are expected to begin next week - over the past 20 years it has been impossible to travel directly from one nation to the other.
This raises the possibility that families who have been divided by the conflict could finally be reunited.