Although the annual Ulchi Freedom Guardian drill is largely played out on computers, it involves more than 80,000 South Korean and US troops and has repeatedly been condemned by Pyongyang as a provocative war rehearsal.
This year, however, the criticism from the North has been relatively muted as both Koreas have focused on reopening a joint industrial zone that was closed in April at the height of a surge in military tensions on the divided peninsula.
After seven rounds of negotiations, the two rivals agreed last week on a framework for resuming operations at the Kaesong zone, which is an important hard currency earner for the impoverished North.
Building on that breakthrough, South Korean President Park Geun-Hye urged Pyongyang to "open its heart" and resume reunions -- suspended three years ago -- for families separated since the 1950-53 war.
The North on Sunday agreed to hold talks on the issue and also proposed re-starting South Korean tours to its Mount Kumgang resort.
The sudden flurry of proposals and positive responses come just three months after the two Koreas found themselves on a virtual war footing with the North hurling threats of pre-emptive nuclear strikes.
The crisis in April and May was triggered by the North's third nuclear test in February and fanned by a series of large-scale South Korea-US military exercises.
Jang Yong-Seok, a North Korea analyst at Seoul National University, said Pyongyang's unusually muted response to the joint drill indicated its intention to ease months of tension.
"The North appears to be entering a phase where it not only tries to lower tension with Seoul but also tries to ease its isolation with the rest of the world in general," he said.
The defensive 10-day joint drill that kicked off Monday is relatively low key, with participating troops largely confined to barracks and no high-visibility land, sea or air manoeuvres.
Last month, the North's ruling-party newspaper Rodong Sinmun had warned that going ahead with the exercise could bring the peninsula "to the brink of war."
But since then it has said little and there has been no repeat of the bellicose rhetoric that was thrown at the joint drill earlier this year.
Meanwhile, Red Cross officials from both Koreas will hold talks Friday on resuming family reunions.
Millions of Koreans were left separated by the war, which sealed the peninsula's division. Most have died without having had a chance to meet family members last seen six decades ago.
About 72,000 South Koreans from separated families -- nearly half of them aged over 80 -- are still alive and waiting for a rare chance to join the highly competitive reunion events, which select only up to a few hundred participants each time.
At the reunions, North and South Koreans typically meet in the North for two or three days before the South Koreans -- many in tears -- head home again.
For those too infirm to travel, reunions via video conferencing have been arranged in recent years.
The last event took place in late 2010, after which the programme was suspended in the wake of North Korea's shelling of a South Korean border island.
As for the North's proposal on re-opening the Mount Kumgang resort, working-level talks have been set for Thursday.
Kumgang was the first major inter-Korean cooperation project, and thousands of South Koreans visited the Seoul-funded resort in the North between 1998 and 2008.
The South suspended the tours -- another rare source of hard currency for Pyongyang -- after a North Korean soldier in 2008 shot dead a female tourist who strayed into a restricted zone.
Park Hyeong-Jung, an analyst at the Korea Institute for National Unification, cautioned that Pyongyang's sudden change of tack would be unlikely to appease Seoul overnight.
"Unless the North takes some tangible steps for denuclearisation, it will be hard (for Seoul) to resume the Mount Kumgang tours that pump a huge amount of money into the North's regime, or other cross-border projects," he said.