Even so analysts warn that the positive mood could evaporate quickly after the Games, when the USA and South are due to hold major joint military exercises that always infuriate the North.
South Korea suggested the formation of a joint team as part of its efforts to use the Games to re-engage with the North and pave the way for talks over the North's weapons program.
The prospect of talks comes after months of tension between Pyongyang, Seoul and Washington over North Korea's nuclear and missile programmes, with US President Donald Trump and North Korean leader Kim Jong Un trading insults and threats of destruction amid tightening sanctions from the United Nations.
North Korean leader Kim Jong Un's sister has headed home after a whirlwind three days in South Korea, where she sat among world dignitaries at the Olympics and tossed a diplomatic offer to the South aimed at ending seven decades of hostility.
Mattis' remarks come after South Korean President Moon Jae-in was presented a formal invitation to visit North Korea, potentially setting up the first meeting of Korean leaders since 2007.
But the North was still welcomed with open arms to what South Korean President Moon Jae-in called "Olympic games of peace" and the US appeared to be the one left out in the cold.
At the same time, the vice president, however, reiterated Washington's tough stance towards North Korea, saying the Trump administration would keep up its "maximum pressure campaign" on Pyongyang to force the country to stop its nuclear weapons program.
China, which has pushed consistently for talks to find a peaceful solution to the North Korean nuclear issue, also praised the steps toward dialogue alongside the Olympics.More news: Trump Unsure If Israel Genuinely Wants Peace With Palestinians
Vice President Mike Pence, who worked relentlessly to undermine North Korea's propaganda at the Winter Olympics, has called North Korea the worst "tyrannical regime on the planet", and made a visit to the demilitarized zone in 2017.
"I hate Moon and I hate the North", read an online comment. U.S. talks could follow talks between North and South Korea.
North Korea's Samjiyon art troupe performs the Gangneung Arts Center in Gangneung on Thursday.
Kim Yo Jong's aloof expression when she wasn't meeting with high-ranking South Korean government officials and high-tilted chin prompted scorn from many South Koreans, who said she looked "too haughty" or "uppity".
Pence and Abe warned against the North's "charm offensive" and "smile diplomacy", which they believe could send the wrong message to North Korea and cause cracks in the worldwide alliance to check the North. She is in charge of her brother's public image and holds the power for policy-making in a rogue regime, and her presence in South Korea may signal a shift toward reunification.
Pence said in a newspaper interview the United States and South Korea had agreed on terms for further diplomatic engagement with North Korea, first with Seoul and then possibly leading to direct talks with Washington. "But if you want to talk, we'll talk", he added. But on arrival North Korean officials said they needed more fuel to go back.
The source also described as "undignified behavior" Pence's decision to stay seated and to not applaud the unified Korean team at the opening ceremony, adding that the Vice President "took the low road instead of acting like a big brother".