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By David Adams MIAMI/HAVANA (Reuters) - U.S. relations with Cuba have undergone a surprise warming in recent months, raising expectations of possible agreements to bring the two countries closer after more than 50 years of hostility. U.S. and Cuban officials overcame a series of potentially divisive incidents this summer with mutual displays of pragmatism rarely seen since Cuba's 1959 socialist revolution that brought Fidel Castro to power. President Barack Obama appeared to recognize this publicly on November 8 when he said at a fundraiser in Miami that it may be time for the United States to revise its policies toward Cuba. "We have to be creative and we have to be thoughtful, and we have to continue to update our policies," he said. Hostile rhetoric has long characterized relations between the two countries, separated by only 90 miles of sea. But U.S. and Cuban officials now are privately expressing appreciation of each other's handling of the incidents. They include Cuba's decision not to offer a safe haven to fugitive former U.S. National Security Agency contractor Edward Snowden, who is sought by the United States for alleged espionage, and the diplomatically deft U.S. handling of a North Korean ship carrying Cuban weapons in possible violation of U.N. sanctions. "I think there is a willingness on both sides to engage more pragmatically, but we are not on the cusp of any great policy changes," said one U.S. official involved in discussions on Cuba policy. "We are not as optimistic as the Cubans are, but there's interest in moving things along." Cuba has made no official response to Obama's speech but chose not to criticize him for hailing two leading Cuban dissidents who attended the fundraiser as champions of democracy. Nor did they react to the holding of the event at the home of the president of the Cuban American National Foundation, a longtime foe of the Castro government. In the past, the Cuban authorities have often issued stinging rebukes of a U.S. president in similar circumstances. "For Obama to say what he said, and do that in Miami, is not easy. That didn't go unnoticed here," in Havana, said Carlos Alzugaray, a retired Cuban diplomat and former ambassador to the European Union. "There is still a great lack of confidence between the two sides, but I think both sides want to do something." FACE-SAVING DIPLOMACY Despite the lack of formal diplomatic relations with Cuba, U.S. and Cuban officials do have contact "when it is our interest to do so," one senior U.S. government official told Reuters. U.S. officials met with a top Cuban diplomat in Washington to request that Havana refuse entry to Snowden, U.S. officials told Reuters. Cuba made no guarantees, but unlike some of its allies in Latin America it chose not to extend a hand to Snowden. "There's a lot of sympathy with Snowden's cause here, but it wasn't in Cuba's interest to get involved," Alzugaray said. In July, when the Obama administration detected a North Korean vessel carrying a hidden cargo of Cuban weapons, including two MiG-21 fighter planes and 15 MiG jet engines, departing from a port in Cuba, U.S. officials say they decided not to intervene directly so that they could avoid a high-profile bilateral incident. Instead, they tipped off Panamanian officials, who raided the ship and found the weapons, allowing the case to be handled in a more low-key multilateral manner by the U.N. Security Council, which is investigating whether the shipment violated a ban against weapons transfers to North Korea. Cuba says the aging, Soviet-era weapons were being sent for repair, to be returned to Cuba. It has remained silent since then, raising no objections to the way the issue is being handled, and has cooperated with U.N. weapons inspectors who visited Cuba last month. "Both sides, Cuba and the United States, have acted with great care," Alzugaray said. President Raul Castro, who replaced his ailing brother Fidel in 2008, has earned a reputation as a pragmatist. His attitude toward the United States also may be a hedge against political uncertainty in oil-rich Venezuela, Cuba's staunchest - and most generous - ally in recent years. U.S. officials are closely watching as Cuba implements a series of free-market reforms to the Soviet-style economy. Cuba shows no signs of changing its one-party, communist-run political system, although is has relaxed travel restrictions, allowing dissidents to travel abroad. "Because of the economic reforms under way in Cuba the conditions are being put in place for a more normalized engagement with the U.S.," said Richard Feinberg, a senior fellow of the Washington-based Brookings Institution who briefed senior administration officials last week on a newly published study highlighting the role of a new middle class of emerging entrepreneurs. "I was given the impression that its basic analysis - that important changes were occurring in Cuba and that the U.S. should be more engaged - was widely shared and that some new initiatives would probably be forthcoming," he said. POTENTIAL CONGRESSIONAL OBJECTIONS Obama is likely to face opposition in Congress to attempts to thaw the relationship with Cuba at a time when he is already under fire for trying to reach a deal with Iran on its nuclear ambitions. Two powerful senators of Cuban descent, New Jersey Democrat Robert Menendez and Florida Republican Marco Rubio, both hold to a firm line of limited engagement with Cuba. "The administration is willing to ignore all of the obvious signs of continued and even ramped-up repression because it is overly eager to warm up relations between our countries," U.S. Representative Ileana Ros-Lehtinen, a Cuban-American Republican from Miami, told Reuters. The Obama administration's hands are tied in many ways by the 50-year-old U.S. economic embargo against Cuba, an executive branch decree first issued by President John F. Kennedy and reinforced by Congress in the 1990s. The fate of U.S. contractor Alan Gross, serving a 15-year jail sentence in Cuba for his role in setting up an illegal underground Internet network, also has made for a diplomatic impasse, as have four convicted Cuban agents jailed in the United States for spying. U.S. officials say the Gross case remains "a serious impediment" to improved relations, but his detention has not ruled out all engagement with Cuba. "He's an American prisoner, and we should do all we can to obtain his release but we shouldn't let it guide U.S. foreign policy," said U.S. Representative Joe Garcia, a Cuban-American Democrat from Miami. U.S. officials also are upbeat about Cuba's role in hosting continuing peace talks between the Colombian FARC rebels and the government of Colombia. U.S. Secretary of State John Kerry also thanked Cuba for its help late last month in securing the release of a U.S. army veteran held by the FARC in Colombia. One of the signs of a thaw could be Cuba's removal from the U.S. list of state sponsors of terrorism, which could ease strict curbs on financial transactions involving U.S. citizens. Talks between the United States and Cuba to renew direct postal service, which was suspended 50 years ago, also have progressed better than expected. "The Cubans usually spend the first day lecturing the U.S. on the embargo and the next day stalling," Garcia said. "This time after 15 minutes of required rhetoric they decided to move forward." (Additional reporting by Marc Frank in Havana and Andrew Cawthorne in Caracas; Editing by Martin Howell, Prudence Crowther and Bill Trott)