North Korea has requested a formal peace treaty with the US, with which it has technically been in a state of war for over half a century.
A South Korean ship fired on a North Korean vessel after it says the North's ship crossed into the South's waters. The exchange ratchets up tensions before US President Obama's Asia visit, scheduled for mid-November.
The South says it is tired of an approach that lets North get perks for small concessions.
Seoul demanded an apology Tuesday after Pyongyang released without warning a torrent of dam water that killed six people in the South.
The Hyundai engineer, who has been held since March, was released after the company's chairwoman traveled to Pyongyang Monday.
US envoy Stephen Bosworth is visiting Beijing, Seoul, and Tokyo, after Pyongyang rejected six-party dialogue and threatened to test another nuclear bomb.
The missile launch is believed to be a military test, though Pyongyang insists it is launching a satellite.