MOSCOW, JULY 16 -- The Soviet Union today dropped its opposition to a united Germany joining NATO, removing the last major obstacle to the reunification of East and West Germany.

The breakthrough, marking a profound turn in East-West relations, was announced at a joint press conference by Soviet President Mikhail Gorbachev and West German Chancellor Helmut Kohl, following two days of intensive talks.

"Whether we like it or not, the time will come when a united Germany will be in NATO, if that is its choice," Gorbachev told reporters. "Then, if that is its choice, to some degree and in some form, it can work together with the Soviet Union."

The two leaders reached an eight-point agreement, highlighted by the decision that Germany, upon unification, would be a sovereign country free to join whatever bloc or alliance it wished, Kohl said.

They also agreed to begin negotiations on the withdrawal of Soviet troops from East Germany and on reduction in the size of a united Germany's armed forces. Gorbachev said the West German army should be cut back from the present level of 480,000. Kohl said combined German forces after reunfication would total 370,000.

Capping months of diplomatic effort during which Bonn pledged a $3 billion bank loan to Moscow as part of a $15 billion aid package, the West German chancellor flew to Moscow Saturday night. The two leaders traveled Sunday to Gorbachev's rural home region in southern Russia, where the agreement was made final.

Soviet acquiescence to a united German membership in the North Atlantic Treaty Organization clears the most difficult hurdle in the unification process, virtually assuring that it will be completed by the end of this year.

The Soviets, as one of the four Allied powers that divided Germany after World War II, had threatened to veto unificiation because of the NATO issue.

"We are leaving one epoch of the development of the international situation and are entering another one," Gorbachev said in opening remarks at the 75-minute press conference, held for Soviet and foreign journalists in the tiny town of Zheleznododsk in the Soviet Caucasus. "This will be an epoch of lasting peace."

The decision is a major concession for the Kremlin leadership. Fearful of the threat of a united German state in the 16-member Western defense organization, which was created to protect the countries of Western Europe and North America from a Soviet military attack, Moscow battled to the finish to keep at least a part of the new Germany neutral.

In explaining the change in his position today, Gorbachev said that the recent shift in NATO's stance to an end of the Cold War and toward the Soviet Union had made it easier.

In a declaration issued in London two weeks ago, the alliance said that it no longer views the Soviet Union as an adversary and invited Gorbachev to NATO headquarters in Brussels for a speech and a visit.

Gorbachev nevertheless made clear in his remarks today that Moscow shifted its position reluctantly.

He emphasized that as part of the agreement with Kohl, the Soviet Union should have a grace period of three to four years to remove its troops from East Germany, which is a party to the Soviet-led Warsaw Pact defense treaty.

Under the Warsaw Pact, the Soviet Union has 350,000 troops stationed in East Germany. Gorbachev also said he hopes that no nuclear weapons or foreign troops be based in the eastern part of a united Germany.

Kohl's announcement of a post-unification troop strength figure of 370,000 followed his surprise agreement at the NATO summit in London earlier this month to accept unilateral reductions on German forces.

That decision paved the wave for today's breakthrough.

The timetable and circumstances under which Germany will be formally included in NATO are unclear.

Gorbachev did not specify whether the formal move would be made in the next session of the so-called "two plus four" unification talks among East and West Germany and the four World War II Allies -- the United States, Britain, France and the Soviet Union -- that are scheduled to open in Paris on Tuesday, or at a later date.

Kohl, speaking before Gorbachev at today's press conference, outlined the eight points of the agreement the two had reached. Besides allowing the united Germany to join the alliances or blocs of its choice and setting troop levels and withdrawal timetables, Kohl said that he and Gorbachev agreed that immediately after unification, Germany and the Soviet Union will sign a wide-ranging treaty embracing economic, cultural and security matters.

For all its sweeping significance, the announcement paving the way for East and West Germany to be united was sealed and announced today in quiet, picturesque setting.

Gorbachev and Kohl flew on Sunday to the Soviet leader's home town of Stavropol, in the Russian republic's heavily agricultural southern region.

In between tours of Gorbachev's old haunts, which were occupied by German troops during World War II, the talks proceeded.

Reaction to the understanding between Gorbachev and Kohl included the following:

In Washington, President Bush released a statement welcoming Gorbachev's decision, saying it "demonstrates statesmanship and strengthens efforts to build enduring relationships based on cooperation."

Secretary of State James A. Baker III called the NATO move "the right development for all of Europe," Washington Post staff writer David Hoffman reported from Paris, where Baker is attending the latest round of the "two plus four" talks.

Baker predicted it would accelerate German unification, but said the full ramifications of the Gorbachev Kohl accords "leave some room for interpretation" and he wanted to reserve judgment.

NATO, U.S., French and British officials quickly welcomed Gorbachev's statement, the Associated Press reported.

An official NATO statement released at the alliance headquarters in Brussels said:

"Germany's membership in our alliance will increase stability for all. It is as much in the interests of the Germans as their neighbors in East and West, including the Soviet Union."

"My God, what a relief," a NATO diplomat in Brussels said, according to Reuter. "Working out where Germany would be in Europe, what military status it would have, was the toughest problem of all."