Nuclear-armed India and Pakistan reached a breakthrough agreement on Tuesday to open formal talks and expressed confidence about settling their dispute over Kashmir which brought them close to a fourth war two years ago.

Diplomats hailed the agreement as an important step toward ending half a century of mistrust, but cautioned that the two sides were still far apart on fundamental issues.

Pakistan's and India's national flags are seen waving as security personal keep guard from the roof of the Islamabad International Airport during Indian Prime Minister Atal Behari Vajpayee's departure on January 6, 2004.  [Reuters]

The agreement followed an ice-breaking meeting on Monday between Indian Prime Minister Atal Behari Vajpayee and Pakistani President Pervez Musharraf on the sidelines of a regional summit. It was their first meeting in more than two years.

"History has been made," Musharraf told a news conference, describing the meeting as "a good beginning."

"We have taken a big leap forward. Now we will need to sustain this leap forward through further progress."

A joint statement said the two sides had agreed to start a dialogue in February, although details have to be worked out.

It said the two leaders were also confident the start of the dialogue would lead to a settlement of the Kashmir dispute, the heart of rivalry between the neighbors since independence from Britain in 1947 and the cause of two of their three wars.

"NO WINNERS AND LOSERS"

Musharraf paid credit to Vajpayee's "vision" and "statesmanship" which made the deal possible, and to the flexibility shown by the negotiating teams on both sides.

"There are no winners and losers," he said. "This is a victory for the world, for all peace-loving people, a victory for all the people of India and Pakistan and for the people of Kashmir who have suffered all these years."

The two sides almost came to war in 2002 after an attack on the New Delhi parliament India blamed on Pakistani-backed militants. Violence has continued in Indian Kashmir despite Pakistan's announcement of a cease-fire along the front line dividing the two armies in November.

Relations have gradually warmed since April, when the 79-year-old Vajpayee launched what he called a final bid for peace in his lifetime.

"There seems to be a recognition on both sides that the other is serious," said a diplomat. "That is a fundamental step, simply to have overcome the mistrust."

However he added: "There is still an awfully long way to go."

In an indication of the difficulties ahead, nine people, including five Muslim rebels, were killed in clashes in Indian Kashmir on Tuesday.

"I don't trust these handshakes," said Ashok Pundit, a leading Indian filmmaker and spokesman for a group representing thousands of Hindus forced to flee Kashmir by militant attacks.

"They are like a romantic couple -- one promising the moon to the other. But when reality dawns, they will be fighting against each other. Kashmir will never be resolved."

But a Kashmiri separatist alliance welcomed the breakthrough. "We welcome the peace moves by the two countries. Now India and Pakistan have started seeing the people of Kashmir," said Abdul Gani Bhat, spokesman of the All Parties Hurriyat (freedom) Conference, an umbrella organization of separatist groups.

MILITANTS VOW TO FIGHT ON

The Himalayan region has been split between India and Pakistan since just after independence and the dispute has cost tens of thousands of lives since then.

Militants and Islamic hard-liners in Pakistan rejected the deal and the largest Hizbul Mujahideen group vowed to continue attacks on Indian security forces.

"We will announce a cease-fire only if India accepts Kashmir as a disputed territory, promises to resolve the problem according to wishes of its people, frees all prisoners, stops its crackdown and withdraws its army to barracks," the group's leader Syed Salahuddin told Reuters from Pakistani Kashmir.

India accuses Pakistan of arming and training militants fighting in Indian Kashmir, and had refused to talk until it had evidence Pakistan was no longer backing "cross-border terrorism."

Pakistan denies fueling the militancy and accuses India of major human rights abuses in Kashmir.

The joint statement said Musharraf had pledged to Vajpayee he would not let Pakistan's territory be used for terrorism.

In his news conference Musharraf reiterated this, and despite two attempts on his life last month blamed on Islamic militants, vowed not to let extremists sabotage any deal.

"There will be a fallout from extremists," he said. "There are extremists on both sides who may not want peace."

"We need to move forward strongly in the direction of peace as if there are no such people existing in both countries."

Anyone with their "finger on the pulse" would see that the people of both countries wanted peace, he added.

Before coming to Islamabad, Vajpayee cautioned that any solution to the decades-old dispute would need time, and observers also warned against expecting a quick deal.

"I can't see them coming to a solution that could be agreed on now that would be acceptable to India, Pakistan and Kashmiris," the diplomat said.

"More likely is an evolutionary process. If they change the context on the ground over a period of a few years, solutions can become acceptable that are now unacceptable."

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