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The entanglement of two qubits, each defined as an effective two-level, spin 1/2 system, is investigated for the case that the qubits interact via a Heisenberg XY interaction and are subject to decoherence due to population relaxation and thermal effects. For zero temperature, the time dependent concurrence is studied analytically and numerically for some typical initial states, including a separable (unentangled) initial state. An analytical formula for non-zero steady state concurrence is found for any initial state, and optimal parameter values for maximizing steady state concurrence are given. The steady state concurrence is found analytically to remain non-zero for low, finite temperatures. We also identify the contributions of global and local coherence to the steady state entanglement.