"In their heart of hearts the government is not ready to establish full diplomatic relations with the Vatican," one diplomat said after an annual visit to Hanoi by Vatican undersecretary of State Monsignor Pietro Parolin on June 9-15.

Vietnamese Catholics' hopes of diplomatic ties between Hanoi and the Vatican were raised in January 2007 when Prime Minister Nguyen Tan Dung visited the Pope, but talks on a framework have barely begun.

Catholicism in Vietnam dates back centuries, through French colonial rule. There were many Catholics in the U.S.-backed South Vietnamese government that fell in 1975. The Communist Party in power since then has been suspicious of Catholic followers, particularly exiles in America and France.

The three-member Vatican delegation learned that more Vietnamese were joining seminaries, and confiscated church land was gradually being returned, diplomats said.

There is more flexibility in the nomination of bishops, too. Government officials vet nominees but the Vatican wants to maintain its traditional right to appoint Church leaders.

State-run media reports said the two sides had "moved closer" in their views. A foreign ministry statement said: "Both sides also informed each other of the establishment of a joint expert working group to promote building a roadmap for the development of Vietnam-Vatican relations."

No precise time or deadline has been set for the working group, diplomats said. Officials also discussed the weeks of protests by Catholics last December and January demanding the return of land seized from the Hanoi nunciature 50 years ago.

Religion remains under state supervision in the mostly Buddhist country of 85 million. Six million are Catholics, the second highest Catholic population in Asia after the Philippines.

By Grant McCool - Reuters - June 20, 2008