The two arch rivals were seen sitting next to Governor ESL Narasimhan, having an animated conversation during the customary function.
Rao and Naidu were recently seen together during President Pranab Mukherjee's visit here.
The two leaders later had a closed-door meeting with the Governor, sources said.
Relations between Telangana and residual state of Andhra Pradesh have been marked by disputes over admissions to professional colleges, power and water sharing, etc.
In his Independence Day speech at Kurnool, Naidu sent a signal to his Telangana counterpart that he was ready to sit and discuss unresolved issues.
BJP MP Bandaru Dattatreya, BJP floor leader in Telangana Assembly K Lakshman, several top officials of the two states and freedom fighters were present on the occasion.
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