The Pacific Islands Forum failed come up with a united climate change stance on temperature warming to take to UN talks in Paris this December.
Climate change was the main hot-button issue for the 16 leaders at the retreat in Port Moresby on Thursday.
Small island nations facing rising seas argued desperately for the forum to back restricting global warming to 1.5 degrees or risk their survival.
But Australian Prime Minister Tony Abbott and his New Zealand counterpart John Key favoured a two degree warming limit.
They refused to give ground during the "robust" discussions at the nine-hour meeting.
Mr Abbott said Australia and NZ had made no additional commitments on climate change but insisted they had a "good story" to tell on mitigation efforts.
"We can be constructive global citizens when it comes to climate change without clobbering our economy," he told reporters.
His government has announced a carbon emissions reduction target of 26-28 per cent on 2005 levels by 2030, while NZ's target is a cut of 30 per cent below 2005 levels by 2030.
Both targets have been criticised for lacking ambition.
Mr Key said the forum accepted low lying states like Kiribati, Tuvalu and Marshall Islands were particularly vulnerable to climate change and wanted an even more ambitious target than the two degree limit that came out of Copenhagen talks in 2009.
"In the end we'll see what Paris comes out with," he said.
Mr Abbott and Mr Key were seen celebrating the result over beers at the Grand Papua Hotel bar following the press conference.
Kiribati President Anote Tong earlier this week said the issue would be a test of the forum's credibility in the region and hinted some nations might consider walking away.
But Mr Tong was more diplomatic on Thursday, saying the discussions had gone well and were held in good spirit.
"Many of you are here to see some fist-fighting. We did argue," he said.
"It's not the best outcome we would of liked."
Fiji's rival club of Pacific nations last week issued a declaration calling for a 1.5 degree target and that point was echoed in a statement from a forum sub-group of six small island states earlier this week.
On the other controversial issue of human rights abuses in Indonesia's Papua provinces, host Papua New Guinean Prime Minister Peter O'Neill said the forum had agreed to respect Jakarta's sovereignty.
But the leaders wanted Indonesia to allow the forum to conduct a fact-finding mission.
Leaders were able to find more common ground on fisheries management and will consider a NZ quota system.
At the moment fishing vessels pay a daily fee to catch as much fish as they like.
Australia will commit an extra $19 million a year on increased aerial maritime surveillance.
The forum wraps up on Friday.
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