NEW DELHI (Dow Jones)–Italy agreed to compensate the families of two Indian fishermen who were allegedly killed by two Italian naval officers, a move that may help the countries resolve a dispute over the incident.

Italian Defense Minister Gianpaolo Di Paola, speaking to reporters on Friday on an official trip in Moscow, said his government will give a “donation” to the families of the two fishermen, describing it as a goodwill gesture.

Italy has been pressuring India to allow the officers to be tried in Rome ever since Indian authorities detained them on charges of murder in February. Massimiliano Latorre and Salvatore Girone, who were posted on an Italian-registered cargo ship to provide security, are accused of shooting and killing the two fishermen off the coast of the southern Indian state of Kerala, mistaking them for pirates.

How to deal with the officers became a cause of tension between Italy and India. While Italy claims the incident happened in international waters, and hence that the officers should face trial in Rome, India maintains the case should move forward in its courts.

Italy’s decision to give money to relatives of the victims comes after rounds of botched diplomatic talks. Recent visits to India by Italy’s foreign minister and a senior official from the Defense Ministry failed to resolve the dispute.

The public in both India and Italy reacted strongly to the deadly shooting, adding pressure on their governments to maintain a firm stance on the matter. On Friday, Di Paola reiterated his government’s position that Italy, not India, should have jurisdiction over the case.

A spokesman for India’s foreign ministry said India maintains its stance that this is a criminal case that should be probed in its courts.

The compensation by Italy effectively settles a civil suit filed by relatives of the slain fishermen in Kerala. Italian officials have agreed to pay 10 million rupees ($192,000) to the relatives of each victim, according to the relatives’ lawyers, C. Unnikrishnan and V.M. Syamkumar

The lawyers said their clients were satisfied with the agreement. “Once the money has been accepted, there is no question of biting Italian authorities further. We will withdraw the civil suit,” said Unnikrishnan. The lawyers said the compensation agreement is likely to be formalized Tuesday in court.

The criminal case against the officers is ongoing. Speaking to news channels on Friday, Oommen Chandy, the chief minister of Kerala, said “there is no question of settlement” in the criminal case.

Di Paola described the monetary donation as an “act of generosity,” saying it has nothing to do with the ongoing judicial process.

-By Margherita Stancati and Preetika Rana

Copyright © 2012 Dow Jones & Company, Inc.

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