US President George W Bush [Images] Friday said the relationship between India and the United States was "closer than ever before" and it has the power to transform the world.

"I have come to India as a friend," he said addressing a select gathering here at Delhi's [Images] historic Purana Qila.

Bush said India has to lift caps on foreign investment and further open its markets to US business.

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Observing that India and the US would lead the way in meeting the global challenges, he said the biggest challenge was energy.

On the landmark Indo-US nuclear deal reached on Thursday, Bush said both sides agreed on the plan to implement this "historic initiative" which would strengthen the economy of both countries.     Beginning his address with a "namaste", Bush said he was "dazzled" by the ancient land, which was the birthplace of many great religions which live side by side peacefully.

"You are inspired by the past and you can see the future. India is a natural ally for us," he said amid applause from the gathering.

He said the United States intends to open a new consulate in Hyderabad and an American Centre in Delhi.

He also noted the contributions of people of Indian descent to American life and had a special mention for astronaut Kalpana Chawla [Images], who lost her life in the Columbia Space Shuttle crash in 2003.

Bush said that for every nation divided by race, religion and culture, "India offers a hopeful path".

"The world has benefited from the example of India's democracy... it is a global power," Bush said.

The US President also praised India's efforts towards rehabilitation in Afghanisation.

The US President said both India and his country stood side by side in the fight against terror.

In his address, Bush referred to the attack on the Indian Parliament in 2001 -- the year terrorists flew hijacked planes into New York's World Trade Centre -- and pre-Diwali bomb explosions in Delhi, last year.

"Their (terrorists') goal is to impose a hateful vision. But they have misunderstood our countries."

Bush also spoke about his countries cooperation with India in dealing with threats of bio-terrorism and in cyber and air security.

The US President said both countries drew strength from their beliefs in "human freedom" while fighting those who he insisted were using "weapons of fear" against humanity.

Describing India as a global power, Bush said the world now needs its leadership and has a historic duty to support democracies around the world.

On his surprise visit to Kabul on his way here, he said India has stood by Afghanistan in its hour of need. He said India offers a compelling example to Afghanistan of a genuine democracy.

Bush, who will hold talks with President Pervez Musharraf [Images] in Islamabad [Images] on Saturday, said there was a time when US' good relations with Pakistan posed concern for India but that no longer holds good now."India is better off because of close relations between US and Pakistan and Pakistan is better off because of close relations between US and India", he said.

Bush said during his meeting with Musharraf he would discuss the continuing need for vital cooperation in the war on terrorism. A prosperous and democratic Pakistan was a steadfast ally of America and a peaceful neighbour for India, he said.