The US is to help fund efforts in Vietnam to clean up soil contaminated by the defoliant Agent Orange in a move hailed today as the first step in healing a long-running rift between the two former enemies.

Washington's ambassador to Vietnam said that the US would contribute $400,000 (£210,000) to a $1m study to find ways to removed the highly toxic chemical, dioxin, from earth at the war-era air force base at Danang.

It is one of three hotspots at air bases identified by US scientists, though 70m litres of the chemicals were dropped on southern Vietnam between 1961 and 1975 to strip trees of foliage and expose enemy positions and supply routes.

The move, announced at a joint media conference in Hanoi, is symbolically significant as the US has always rejected Vietnam's claims that Agent Orange — so-called because it was stored in orange barrels — caused birth defects and diseases in four million people.

The US always refused to pay compensation to the millions of Vietnamese said to have suffered from Agent Orange's effects, maintaining there was no proven scientific link. A court action brought against 37 American chemical companies by a group of Vietnamese was dismissed by US courts in 2005, but an appeal has been launched.