Radar showed two Royal Navy helicopters on a collision course before they crashed and it was thought both Sea King pilots had seen each other.
But the two aircraft crashed and all seven crew died an inquest into the deaths in 2003 has heard.
The inquest in Oxford is investigating what caused the helicopters to crash as one returned to HMS Ark Royal and another leaving on a mission off the coast of Iraq.
Six of those killed were with 849 Squadron, based at RNAS Culdrose. The seventh victim was a US serviceman.
Lt Alistair Dale on duty on board the air craft carrier said moments after spotting the aircraft on the radar, apparently travelling straight towards each other, he heard a shout from a ship's look-out that there had been an explosion in the sky a few miles away from the ship.
The two helicopters appeared to be flying straight towards each other but as they had both visualled each other he had not assessed it as a problem Lt Dale, now Lt Commander, tried to get in touch with his aircraft but received no response.
He said before the crash he had heard one of the helicopters say it had seen the other, and the other reply it had seen the first.
"The two helicopters appeared to be flying straight towards each other but as they had both visualled each other I didn't assess it as a problem," said Lt Dale.
Lt Philip Green, 30, from Caythorpe, Lincolnshire; Lt Antony King, from Helston; Lt Marc Lawrence, 26, from Westgate-on-Sea, Kent; Lt Philip West, 32, from Budock Water; Lt James Williams, 28, from Falmouth, and Lt Andrew Wilson, 36, from Exeter, Devon died alongside a US serviceman.
The inquest earlier heard that mechanical failure of the Sea Kings was unlikely and the Ministry of Defence quickly ruled out the possibility of enemy action.
The inquest continues.
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