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One of the most significant developments in the nonproliferation regime in recent years has been the Indo-US nuclear cooperation agreement, which was first announced in July 2005. It seeks to allow nuclear cooperation between India and the U.S. New Delhi is not a member of the Nonproliferation Treaty, and because it does not maintain full-scope safeguards on its nuclear installations, full nuclear cooperation has been denied to it ever since it conducted its first nuclear test in 1974. Under the agreement, U.S. companies will be allowed to supply India with nuclear technology; in return, India will submit 14 of its 22 existing reactors under safeguards of the International Atomic Energy Agency (IAEA), putting them on a 'civilian' list. The remaining eight reactors will be put under a 'military' list for use in India's strategic nuclear program. While this is the basic structure of the agreement, several steps have to have be taken before its implementation. They include amending the rules of the Nuclear Suppliers Group and concluding a safeguards framework with the IAEA. But the first, and arguably most crucial step, has been concluding a bilateral nuclear agreement between India and the U.S., under Section 123 of the U.S. Atomic Energy Act. It specifies the benefits that India will receive as well as the concessions it will have to make with regard to its nuclear program. The '123' agreement also requires approval from the U.S. Congress.However, despite some expectations that the bilateral agreement would be concluded speedily, several hurdles cropped up between India and the U.S., reflecting long-standing differences between the two sides on the future of nuclear energy and fissile material production. These differences include - whether India would legalize its unilateral moratorium on nuclear tests; whether India would be allowed to reprocess spent fuel; and whether India would be granted assurances of permanent supply of fuel for nuclear reactors. This paper examines the '123' agreement negotiations between New Delhi and Washington, in context of their broader bilateral relations as well as their positions on nuclear proliferation-related issues. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]