Oman's Sultan Haitham bin Tarik, whose Gulf country has been a long-time mediator between Iran and the West, arrived in Tehran on Sunday for a two-day visit.
His trip comes just two days after Tehran freed Belgian aid worker Olivier Vandecasteele from almost 15 months in custody in exchange for diplomat Assadollah Assadi, who was held in Belgium over a 2018 plot to bomb an Iranian opposition rally outside Paris.
Oman helped facilitate the swap.
The sultan met President Ebrahim Raisi who said bilateral relations can improve in areas including industry and "defence and security affairs", the presidency website said.
"Tehran and Muscat have common views on regional cooperation, strengthening and stabilising the security, peace and prosperity of the nations of the region," it quoted Raisi as saying.
Oman's official news agency tweeted that memorandums of understanding and agreements on promoting investment had been signed.
The sultan's visit comes a year after Raisi visited Muscat, and follows a China-brokered rapprochement deal between Saudi Arabia and Iran announced in March.
Ahead of the sultan's trip, the newspaper Asharq al-Awsat quoted Omani Foreign Minister Sayyid Badr Hamad Al Busaidi as saying Oman was optimistic the "historic" trip would be "beneficial in regional and global terms".
Oman has close ties with Iran, and played a mediating role between Tehran and the United States in the build-up to a nuclear deal Iran and world powers reached in 2015.
The sultanate was reported to have hosted secret US-Iran talks ahead of the signing of the deal known as the Joint Comprehensive Plan of Action, or JCPOA, which gave Iran relief from international sanctions in return for curbs on its nuclear programme.
The JCPOA collapsed in 2018 after Washington unilaterally withdrew from it and reimposed sanctions, prompting Iran to suspend the implementation of its own commitments to curb nuclear activity.
Stop-start talks that began in April last year to restore the nuclear deal have yet to bear fruit.
The last visit by an Omani sultan to Iran was in 2013 when Qaboos bin Said Al Said visited Tehran during the presidency of Hassan Rouhani, who was in office when the 2015 deal was sealed.