Kuwait Airways and the Kuwaiti government have yet to respond to a new offer from Iraq of about $200m to settle the $1.2bn compensation claim arising from the theft of planes and equipment during Iraq's 1990 invasion of Kuwait.

However, although Baghdad does not expect the offer to be accepted, sources in the Iraqi capital claim to be hopeful that the matter can resolved soon.

“There is a new government in Kuwait and both countries have agreed to exchange ambassadors," says a source close to the negotiations. "We are sure the offer will initially be rejected but there is a more positive air around the negotiations.”

Kuwait Airways recently won $82m in the UK High Court for legal costs incurred during its 18-year case against the Iraqi national carrier (MEED 17:7:08).

Kuwait Airways was unavailable for comment.