There had been uncertainty over whether the debate would proceed

The pair have already traded heated accusations over Iraq, with McCain saying the US was "winning in Iraq" and Obama countering that the war detracted from the conflict in Afghanistan.

Although the theme was foreign policy, both candidates began by setting out their views on the current financial crisis.

Both candidates agreed that the controversial $700bn financial bailout package will require the next president to make tough choices and cut back on government spending.

However they clashed over the details, with Obama saying the current crisis was "the final verdict of eight years of failed economic policies by [President George] Bush and McCain".

Foreign policy clashes

On Pakistan and Afghanistan, McCain criticised Obama for his previous assertion that he would attack al-Qaeda and Taliban targets in Pakistan, saying such threats were unhelpful and that Pakistan was a "very important element" in the Afghan conflict.

However, Obama said that if the US had al-Qaeda, or its leader, Osama bin Laden, "in our sights" and if Pakistan was unwilling or unable to act "then we should take them out."

McCain had earlier called for the debate to be suspended while the US government worked on a $700bn bail-out plan for the current financial turmoil.

However, on Friday McCain's campaign said he felt "significant progress" had been made on the deal and he would resume "all activities", including travelling to Oxford in the state of Mississippi where the debate is to be held.

McCain will return to Washington after the debate in order to continue work on the bail-out plan, his campaign added.

McCain criticised

Both candidates had attended meetings in Washington on Thursday along with other members of US congress and George Bush, the US president, however an agreement on the package has not yet been reached.

McCain's call to halt the debate - the first of three between the two candidates before polling is held on November 4 - had been criticised by Obama as "injecting presidential politics into delicate negotiations".

Harry Reid, the senate majority leader, also said that McCain had only "hurt the process".

However, McCain's campaign said the decision to temporarily suspend his campaign had been made "in the hopes that politics could be set aside to address our economic crisis" and condemned the Democrats for playing the "blame game".

In addition to the three presidential clashes the candidates vice-presidential running mates - Democrat Joe Biden and Republican Sarah Palin, will also hold a debate.

Thousands of journalists have descended on the college town of Oxford for the debate, which reports say could be watched on national television by as many as 100 million Americans.

'Relief' over debate

Meanwhile Richard Wolfe, White House correspondent with Newsweek, said the US people would pay attention not to the words, but to the demeanour of the candidates.

The expectation is that McCain will come out and be aggressive or feisty while Obama tends to be more long-winded and professorial, he said.

Those gathered at the University of Oxford, Mississippi, the venue for the debate, said they were relieved it was to go ahead.

"McCain needed to come back here and take part in the debate, if he hadn't it would have been a complete failure," Ian Johnson, an Obama supporter attending a "Rock the Vote" concert in the town, said.

And Reid Baker, a McCain supporting student at the university, said he was excited and relieved that the event was to take place.

"I understand why he [McCain] did have to go Washington and even if he hadn't come down here I still would have voted for him."

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