NEW DELHI, March 13: President Gen Pervez Musharraf insisted on Saturday that Kashmir lay at the "heart" of India-Pakistan "confrontation" and warned that if there was no movement towards its resolution , everything would slide back to "square one".

"Let us be pragmatic. Let us learn to accept harsh facts. Kashmir is at the centre of India-Pakistan ties and has to be settled in an equitable and honourable way acceptable to India, Pakistan and Kashmiris," Gen Musharraf told a closed-door symposium in New Delhi. He was addressing the India Today Conclave 2004 via satellite from Islamabad.

"We must persevere ... If there is no movement towards a solution, I am afraid everything will slide back to square one," Gen Musharraf said, obliquely referring to the improvement in ties with India.

Stressing that the Kashmir issue could not be sidelined or ignored, Gen Musharraf said no leader in Pakistan could do that. He said Kashmiris must join the peace process at some stage to make the solution practical.

He also stressed that the bilateral rapprochement had unlocked the economic and trade potential of the region, but warned that the whole scenario warranted a strong case for resolving disputes.

"India and Pakistan must bury the past and chart a new roadmap for peace. People of both countries desire for peace and are fed up of confrontation."

Gen Musharraf said Kashmir was the "source of disunity in South Asia" and because of this the Saarc forum was on the "periphery of impotence".

He said if the upsurge in Afghanistan and Kashmir was resolved, "we can strike at the root of extremism and terrorism".

"Kashmir is the central issue that awaits a just and durable settlement," APP quoted Gen Musharraf as saying.

"This is a moment of hope and optimism. Let us nurture it carefully and make the process of engagement (between Pakistan and India) irreversible," he said.

Referring to the chequered history of the two countries, he said Pakistan and India had lost half a century in mutual squabbles.

"Let's face it" he said and recalled that the two countries had fought wars, tested nuclear weapons and remained engaged in hot confrontation making the region the "most dangerous flash point in the world.

President Musharraf said he would not speak about the political and legal history of Kashmir as it was well recorded and documented in the archives and resolutions of the United Nations.

He referred to his four-point process suggesting that talks should commence; centrality of the Kashmir dispute be accepted; all solutions not acceptable to either of the three parties be taken off the table and the most feasible and acceptable option be chosen. "I believe nothing could be fairer than this."

The president said a solution would emerge if all sides were mindful of the problem, "if all parties specially Kashmiris are given the opportunity to have their due say and are involved in a credible, sincere and serious quest for a final settlement between Pakistan and India".

The president said the joint agreement reached at Islamabad provided a good framework for a relationship of harmony and mutual respect.

He said the confidence building measures (CBMs) initiated had generated tremendous goodwill, adding, foreign secretary-level talks had further pushed the dialogue process forward.

"The composite dialogue scheduled for May/June this year should augur well for our future relationship," he said.

However, the president cautioned: "There is a simultaneity/ linkage between the CBMs and the composite dialogue. The CBMs cannot outstrip the dialogue process on all substantive issues including Kashmir."

But the president cautioned about the extremists on both sides, who, he said, would try to derail the process.

"We must not be deterred from our path and be remained prepared to deal with them with an iron hand. In fact in our own supreme interests, we must negotiate peace boldly as if there are no detracting extremists, and we must also deal with all extremists firmly as if there is no peace initiative."

He assured that Pakistan was determined "to take two steps forward if India takes one step and chooses to embark on a realistic quest for a just and durable peace with Pakistan on the basis of sovereign equality".

Gen Musharraf said India would find Pakistan sincere and responsive, if it desired genuine improvement in relations.

President Musharraf listed a number of benefits which the two countries would have once there was peace in the region.

He said the market size would expand to 1.2 billion (equal to that of China) opening vistas of trade opportunities within the region.

The foreign direct investment presently stagnating at $3 billion could increase manifold. The natural gas from Iran and Central Asia could become available to the region bringing down energy costs by at least 50 per cent. India might be the maximum gainer.

He said the region had a vast treasure of tourist attractions and the two countries could benefit from combined regional tours.

The president said that with a cut in defence expenditure, funds would be made available for social sectors and poverty reduction.

Through mutual sports, India and Pakistan could regain the lost glory in hockey and cricket.

He said progress on dialogue towards serious resolution of disputes should set us thinking on other substantive CBMs.

"Why can't our defence expenditure be cut down? It certainly can be. Pakistan is not in an arms race. We maintain a quantified force level based on a perceived threat, and a strategy of minimum deterrence."

President Musharraf said: "With the enhancement of firepower of weapons, we are already reducing the strength of our Army by 50,000. We had kept our defence budget frozen for the past four years. India has to review its own strategy because your defence force levels are not based on threat, but on power projection."

He also pointed at the latest multi-billion dollar acquisitions by India and noted the vastly enhanced budgetary allocations to defence.

But the president said: "In any case, Pakistan will remain amenable for mutual and proportional reduction of forces."

He said the present time was ideal for the resolution of all disputes and ushering in an era of peace, harmony and prosperity.

"The peoples of our countries want it, the influential business community is eagerly looking forward to it, the media favours it."

He said the leaders on both sides had to be sincere to develop confidence and trust in each other.

"They have to be flexible enough to accept mutually acceptable solutions to previously intractable disputes and bold enough to bulldoze all opposition and risks en route to peace."

Gen Musharraf said: "We have to show enough maturity to be able to resolve disputes bilaterally within a reasonable time line."

He said: "It is only our failure which invites third party mediation, facilitation, involvement or encouragement. The US being the sole Super Power of the world has a responsibility for bringing a just peace for our future generations. Their involvement towards the resolution of the thorny Kashmir dispute can be of value if we get stuck ourselves."

The president said: "As responsible nuclear weapon states, we must demonstrate to the world that we have the courage and conviction to settle our problems in a civilized manner. We must demonstrate the courage and wisdom to write a new chapter of peaceful co-existence and mutually beneficial cooperation."

He said there was distinct warmth in sentiments in Pakistan and India to engage constructively.

The president said respect for the basic principles of inter-state conduct and developing relations based on sovereign equality were the safe and sure foundation within which Pakistan-India relations could prosper.

Gen Musharraf said: "We in Pakistan look forward to sustaining the present positive momentum in our relations with India. Let us draw a balance between the vast opportunities that exist for mutual gain and the hazards of falling back to self generated hatred and despair."

He said Pakistan and India must lead South Asia to new horizons of economic development. The roadmap delineated for the composite talks must be filled with other pointers and time lines for joint endeavours to resolve differences and disputes. It should not take long to fashion together a roadmap to progress and prosperity, reinforcing and utilizing the talent and genius of our peoples, using our resources optimally.

He also shared his global vision with reference to the war on terrorism and the need to address Muslims' concerns with justice.

The president also spoke about his vision of "Enlightened Moderation" to bring peace to the world.

Replying to a question, he said there was a deep desire for peace among Pakistanis with India and they wanted a harmonious relationship.

He said there were a handful of extremists in Pakistan as there were in India but added, this small minority should not be a hindrance to the peace process.

Answering a question, he said Pakistan was pursuing the peace process with sincerity and would adhere to the joint statement in letter and spirit.