Article published on the 2008-07-21 Latest update 2008-07-22 10:34 TU
After the signing, a subdued Mugabe said that the agreement was "to chart a new way of political interaction", while Morgan Tsvangirai, the leader of the Movement for Democratic Change opposition party called the ceremony "a very historic occasion."
"To see them shaking hands and speaking in conciliatory tones really does show that a huge hurdle has been overcome today," said correspondent Ryan Truscott, reporting from Harare.
Arthur Mutambara, the leader of a breakaway faction of the MDC, also signed the document.
The European Union toughened sanctions against Zimbabwe on Tuesday in Brussels which, for the first time, targets businessmen and four comapanies who back Mugabe's government.
An in-principle agreement was reached last week between EU ambassadors and the sanctions were endorsed at a meeting of the bloc's foreign ministers on Tuesday.
The measures target 37 people, some "from the security apparatus" of the Zimbabwean government who are alleged to have been involved in election-related violence and business figures who funded them.
They have been added to the list of 130 people under a visa ban whose assets have been frozen as well.
This move comes after a bid to pass United Nations sanctions against Zimbabwe's leadership was vetoed by Security Council members Russia and China 10 days ago.