Venezuelan President Hugo Chavez and Spain's King Juan Carlos shook hands and made up on Friday in their first meeting since the monarch told the president to "shut up" at a summit in November.
Venezuela could supply Spain with a limited amount of cheap oil in return for investment in technology under the terms of a deal discussed by the two sides.
A relaxed Chavez joked "Why don't we go to the beach?" as he met the smiling king in sunshine outside the royals' summer residence on the island of Majorca.
But the outspoken Venezuelan leader, dressed in a dark suit and tie, failed to give the monarch a hug, after saying on his weekly television show last Sunday he would like to.
Relations deteriorated between the two countries last year after the king shouted at Chavez: "Why don't you shut up?" when Chavez interrupted a speech by Spanish Prime Minister Jose Luis Rodriguez Zapatero at the Ibero-American summit in Chile.
Footage of the outburst was beamed around the world, inspiring mobile phone ringtones, mugs and T-shirts.
At a later news conference in Madrid on Friday, Chavez said the king had given him a T-shirt depicting the incident during their meeting.
"We caused a furore with that event. It (the T-shirt) is a good souvenir, to laugh at for the rest of our lives every time we see it," he said.
Chavez flew to Madrid from Majorca later on Friday for a brief meeting with Zapatero and a working lunch to discuss business ties between the two countries, possible collaboration on energy and immigration.
During the lunch Chavez and Zapatero discussed a deal for Venezuela to supply 10,000 barrels of crude oil per day to Spain at $100 per barrel in exchange for technology and infrastructure investment, a spokesman for the prime minister's office said.
Spanish businesses, including banks BBVA and Santander and oil company Repsol have an estimated $2.4 billion invested in the oil-rich country.
"Thank you for the warmth with which you have received us," Chavez said at a news conference on the steps of the prime minister's residence in Madrid.
The king's November outburst came after Chavez called former Spanish prime minister Jose Maria Aznar of the conservative PP party a "fascist", prompting Socialist Zapatero to ask for respect for an elected representative.
Minutes later a grim-faced king rose from his seat and stormed out of the forum.
Chavez later threatened to review diplomatic and business ties with former colonial power Spain, a major investor in the OPEC nation, and demanded a public apology from the king.
But relations have since thawed, with Chavez sending his regards to the king during a meeting with Zapatero at a summit in Peru in May.
