It was a little after 8 a.m. on June 28 when Foreign Secretary Shashank started talks on Jammu and Kashmir with his Pakistani counterpart Riaz Khokhar. It was ambush diplomacy at its best. In the 90-minute session, as Khokhar marshalled his weapons on J&K, Shashank hit him with a slew of confidence-building measures (CBMs).

MAKING PEACE TALK: Shashank (left) and Khokhar

From facilitating inter-Kashmir shrine visits to cross-loc trade between the two Kashmirs as well as additional bus services between Suchetgarh in J&K and Sialkot in Pakistan, family contacts, even joint forestry management, Shashank's basket of surprises left the Pakistanis groping for words. This was after India had already proposed new military CBMs the day before, including enhanced communication links between the air force and naval headquarters as well as between relevant field units, and links between defence think tanks in India and Pakistan. Khokhar had no option but to take back the new CBMs to "study" in Islamabad, before continuing his diatribe on Kashmir. The Pakistani side later suggested they had proposed lessening of troops on the border and even a working group for conventional military CBMs. But Pakistan drew the line at recording the proposals in the joint statement.

The composite dialogue has transmogrified into a confidence-building dialogue. And though for the first time the Indo-Pak joint statement refers to a "final settlement", this is a peace process that has less to do with a final settlement than with "peace and confidence". The new ingredient in this process, as Pakistani officials point out, is that Pakistan has logged on to the idea of building confidence rather than rushing ahead into a resolution. So both sides dug out the otherwise forgettable Lahore Declaration to borrow a reaffirmation to the UN Charter and the Simla Agreement. It can sell in both capitals as political gains-given the UPA Government's preference for Simla, and Pakistan, where eyes twinkle if the UN and Kashmir are mentioned in the same breath.

The Ministry of External Affairs (MEA) has churned out what it calls a "creative" approach to the Kashmir issue. "Cooperation" is the new buzzword and India hopes that within the rubric of "supreme national interest" there can be diplomatic wiggle room with Pakistan, particularly on Kashmir. Pakistan seems willing to go along for the moment. After meeting External Affairs Minister K. Natwar Singh in Qingdao, China, Pakistan Foreign Minister Khurshid Kasuri said, "This is a challenge to the leadership of Pakistan and India, that we resolve the issue in a way where there is no humiliation for Pakistan or India. It is a win-win situation for all. I think it is doable."

The test will be the Srinagar-Muzaffarabad bus service, which has captured the popular imagination. It is equally symbolic of the difficulties faced by the two countries. India insists on passports and visas as valid travel documents. Pakistan first plumped for UN documents and later climbed down to offering stamped identification by district commissioners. Pakistan sees this as the thin end of the wedge on formalising the loc and is unwilling to go down that path. Undeterred, India has proposed a second service between Sialkot and Suchetgarh. Although there was no mention in the joint statement, the technical teams will probably meet soon.

It is a measure of the new-found determination to take the process forward that India has refrained from throwing international demands to Pakistan to kowtow to the "sanctity of the loc". When Pakistani spokesman Masood Khan declared presumptuously, "What satisfies Pakistanis will ultimately satisfy the Kashmiris", it was dismissed as nothing more significant than a Freudian slip. Even when Khokhar met separatist Hurriyat leaders Mirwaiz Omar Farooq and Shabbir Shah, the Indian side shrugged it off as "provocative".

It was left to former foreign minister and BJP spokesperson Yashwant Sinha to protest the joint statement, pointing to a "petty political mindset, (which) imperils vital national interests". But that apart, both India and Pakistan have silenced naysayers.

Overlooked in the weekend bonhomie was the fact that the Pakistani team was caught off-guard by the sudden sacking of prime minister Mir Zafarullah Khan Jamali. It prompted a hurried return to Islamabad by Khokhar and his team. While Jamali's exit had been on the cards for some time, being perhaps the weakest premier in Pakistan's history, it was a statement of President Pervez Musharraf's unbridled hold on Pakistani politics. Shujaat Hussain Chaudhry, heading Musharraf's powerful clique, will fill in as interim prime minister until former Citibank executive Shaukat Aziz is elected to the National Assembly. Jamali's removal is unlikely to affect either the Pakistani political landscape or the India-Pakistan peace process. But the musical chairs in Pakistan are a pointer to something different: that Musharraf's mind remains the imponderable in the process.

The initiative thus far has had a good run. The BSF-Pakistan Rangers talks in March toned down the body language at Wagah, while narcotics officials made headway on tackling trafficking. The most unexpected gains came from the nuclear talks which formalised an agreement for the pre-notification of ballistic missile tests.

Now things get tricky. It seems both sides are holding fire until the foreign ministers' meeting in August. Indian and Pakistani negotiators privately admit they are on "cruise control" until then. Musharraf too has indicated that August will mark a significant point in the process. While they will review progress, they are also expected to take the process to the next level. Pakistani officials are hoping for a separate political level dialogue with India on Kashmir, possibly on the lines of the India-China dialogue.

India's National Security Adviser J.N. Dixit and Tariq Aziz-who was Musharraf's classmate and is very close to him-have met unofficially. But India is not likely to formalise this dialogue. Officials connected with the talks say this channel is important-as was evident during the nuclear dialogue where Dixit and Aziz smoothed the way for the agreements.

So, what's in it for either country? And what is in store for this process?

It is easy to list the reasons why Pakistan should keep its eyes peeled to the peace process. The CBMs, cricket matches, new transport and popular links have created a groundswell of positive sentiment for India within Pakistani civil society. It deflects international pressure that has kept Pakistan in the crosshairs of the US. The US may need Pakistan for its war on terror, but it hasn't stopped them from being persuasive on India. Also, peace with India is important as Pakistan attempts to clean up the mess in its economy. For India, the issue is much simpler. It helps to keep the border and the Kashmir Valley quiet while India undertakes some much-needed reforms in its own backyard. It also addresses India's core issue of getting Pakistan to stop terrorism against it. Consequently, India is flooding the process with new and improved versions of peace initiatives and CBMs to keep the two countries at the negotiating table and keep the loc quiet. Initiatives like the Srinagar-Muzaffarabad or the Khokhrapar-Munabao bus service (Pakistan's proposal that the Khokhrapar service be a train instead was given a warm response in India, though the Mumbai-Karachi ferry service will die a quiet death) are all part of the new mantra.

Meanwhile Pakistan is trying to consolidate its position as the spokesperson for the Kashmiris. It has been trying to reunite the Hurriyat under Syed Ali Shah Geelani, while in Pakistan, the Government has been holding meetings with the PoK leadership. After Khokhar met the Mirwaiz, there were reports that an APHC delegation would travel to Pakistan.

But what will really tip the balance is terrorism. It is not in the forefront of the UPA Government's security agenda and the joint statement had only one mention of the menace, but there is little doubt that the return of large-scale terrorism will derail this fragile process.

India is avidly watching the rising infiltration and terrorism figures in the country and the dynamic equation between the Pakistan establishment and the jehadis. As one high-level government source explained, "To the extent that Musharraf cracks down on the jehadi network within Pakistan because it sends the same killers to Kashmir and to Aiwan-i-Sadr, it is beneficial to the peace process." After the attacks on Musharraf and Karachi Corps Commander Lt-General Ahsan Saleem Hyat on June 10, it has become increasingly clear that the jehadis are gaining ground as well as support in Pakistani society. This has added to the surprising losses that the Pakistan Army has been sustaining during its operations in the Waziristan provinces as it tries to fight back Al-Qaida and the Taliban for the US.

But if Pakistan feels it is surrendering its greatest leverage against India-terrorism-but not getting enough of Kashmir in return, or if the operations in Waziristan create a jehadi backlash that necessitates reopening of the Kashmir safety valve to let off steam, things will become difficult.

"Pakistan believes somewhere down the line India could be pushed into making territorial concessions," say officials. Clearly, India is not looking at parting with territory or map-making. But beyond the non-negotiable, the Government is willing to explore measures with Pakistan that give Kashmiris on both sides a better life.

This is the fundamental discrepancy between the two countries' approach to the peace process. So far, both countries are playing a mature game that is delicately poised. India is in the driver's seat at the moment and plans to keep it that way. Pakistan is playing the responsible respondent. The easy part is behind them. Now the process enters the critical lap.

CAN PAKISTAN CREATE AN ... Atmosphere Free of Violence and Terrorism? Although Indian officials and the joint statement downplayed it, infiltration figures don't look rosy anymore. Along the loc and the international border in Jammu and Kashmir infiltration has touched almost 100 after only 26 were caught last month. RENEWED TERROR: Bodies of militants slain in Srinagar on June 29 Intelligence sources point to a new modus operandi by Pakistan that includes pushing in terrorists from "launching detachments" with the help of "border action teams" without using the Pakistani Army so they have plausible denials. There is renewed India-focused militant activity in Leepa valley in PoK as well as in Manshera, Gilgit, Jangal-Mangal and Harpin. What is significant is that most of them appear to be Afghan recruits. This, security agencies have concluded, could be a new approach by Pakistan. Officials maintain the "terrorist infrastructure" in PoK and mainland Pakistan is intact. Pakistan's earlier ban on meetings by jehadi organisations like the Lashkar-e-Toiba (LeT) does not hold good any longer. There have been rallies aimed at the US and India addressed by Hafiz Mohammed Saeed, the chief of the Jamaat-ud-Dawa, the parent organisation of the LeT in Dajkot, Karmaliwala and Chaksawari in April. In fact, investigators following up the recent murder of IRCON engineer Sudhir Pundir discovered that contrary to initial reports blaming the incident on the local Hizb-ul Mujahideen, the weapons of the terrorists had Lashkar's markings on them. The June 29 crackdown on a Lashkar module in Kashmir was significant because it points to plans for new attacks on key targets both within Kashmir and outside. This, security officials say, is Pakistan's new strategy of trying to reclaim its strategic backyard of Kashmir. The LeT is a successor to Al-Qaida as it spreads its wings beyond the frontiers of Pakistan. Publicly, Pakistani officials deny their country is being used as an Al-Qaida base. Indian officials say the LeT is operating cells in Saudi Arabia and Kuwait. The linkages between Al-Qaida and the LeT are evident from one simple statistic-about 40 per cent of Al-Qaida operatives arrested in Pakistan are picked up from LeT or Jamaat-ud-Dawa safe houses.