BEIJING, SEPT. 18 -- Leaders of China and Vietnam held a secret meeting earlier this month that facilitated a breakthrough agreement aimed at ending the war in Cambodia and was a significant step toward easing tensions between Beijing and Hanoi, diplomats and Chinese sources disclosed today.

The decision by China to hold the meeting was part of an effort to reassert itself in the region in response to the changing international environment that has left it diplomatically isolated, and was a reaction to a U.S. policy shift in Indochina that could result in improved Hanoi-Washington ties, the sources said.

"The Chinese have always considered Indochina their backyard," one Asian diplomat said, and they are worried that a U.S.-Vietnamese rapprochement could endanger their own interests in the region. The United States, in the policy shift, dropped its diplomatic recognition of a Chinese-backed Cambodian guerrilla coalition and opened direct talks with Vietnam in an effort to end the 11-year war in Cambodia.

The talks were held Sept. 3-4 between a Vietnamese delegation headed by Communist Party leader Nguyen Van Linh, Prime Minister Du Muoi and former prime minister Pham Van Dong, and a Chinese delegation led by Communist Party chief Jiang Zemin and Premier Li Peng, Western diplomats said. Several diplomats said the talks were probably held in Beijing, but Chinese sources said the meeting was held in Chengdu, capital of Sichuan Province. It was believed to be the highest-level Vietnamese delegation to visit China since the two countries fought a border war in 1979.

The talks represented a major turning point in relations between the two countries which have long been adversaries and have clashed sporadically. As late as 1988, they fought over an island chain in the South China Sea, the Spratlys, which both claim.

The main thrust of the secret meeting, according to Western and Asian diplomats, was to discuss a political settlement of the war in Cambodia. For more than a decade, Vietnam has supported the government it installed in Phnom Penh after its December 1978 invasion, while China has armed and supplied the tripartite guerrilla coalition, which includes the Khmer Rouge.

Several days after the meeting, Cambodia's four warring factions accepted a U.N. framework for a peace settlement at an unprecedented meeting in Jakarta and set up a National Supreme Council to rule Cambodia until elections can be held. {In Bangkok, the factions held a second day of informal consultations but failed to make progress on taking the next step toward peace, Reuter reported.}

"A deal was cut between the two sides on Cambodia," said one diplomat of the meeting between the Chinese and Vietnamese. The Vietnamese agreed to press the Hanoi-installed Hun Sen regime to accept the peace settlement, and China agreed to press the resistance coalition, diplomats and other sources said.

Chinese and Vietnamese Foreign Ministry officials have met several times in the last two years. But while Hanoi sought improvement in relations for economic and other reasons, Beijing insisted that ties could not be normalized until there was a Cambodian peace settlement, including a full withdrawal of Vietnamese troops. Vietnam conducted a general troop pullout from Cambodia last year.

In the last two months, China has begun to soften its rhetoric toward Vietnam. During Premier Li's visit to Singapore in late August, he said that "along with a settlement of the Cambodian question, China would like to normalize relations with Vietnam."

On Monday night, Chinese television showed a 113-person sports delegation from Vietnam crossing into China through the Friendship Pass at the border. The delegation, on its way to Beijing to attend the Asian Games, was the first official Vietnamese delegation to enter China through the pass since 1979.

In addition, Vietnamese Deputy Premier Vo Nguyen Giap, the former defense minister who led Vietnamese forces against the French and the United States for more than two decades, will visit Beijing this week to attend the Asian Games as a "distinguished guest" of the Chinese government, according to the official Voice of Vietnam Radio.

Giap reportedly will stay in Beijing for a week and have meetings with Chinese officials. Giap is known to have close ties with some influential Chinese military figures, including retired marshal Nie Rongzhen.

With the Soviet Union cutting back its aid for Vietnam, Hanoi is known to want closer economic and trade ties with Beijing. A major rapprochement is unlikely to happen quickly, though, because of the longstanding dislike between them, an Asian diplomat said. "Ultimately, both see themselves as the big power in the region," he said.