Prime Minister Atal Bihari Vajpayee has said he will 'retire' and 'accept defeat' if his third and last peace initiative with Pakistan fails.

The prime minister told German daily Der Spiegel  that he is prepared to negotiate with Pakistan President Pervez Musharraf, observing that the resolution of the Kashmir problem would require 'serious compromises'.

"It is never intelligent to get involved in predictions in these issues," Vajpayee said when reminded that he was 78 and asked if he will contest parliamentary elections due next year.

Welcoming the restriction imposed by Pakistan on the Hizbul Mujahideen, Vajpayee said, "Other steps will have to follow."

To a question on what role the US has to play when India has so far rejected any mediation, the prime minister said, "We are partners in an international coalition against terrorism and to fight it everywhere we have to support each other. For this reason the US plays a role in this conflict, and we encourage it to do it effectively." 

"In all matters concerning exclusively India and Pakistan, America does not play any role. I think Washington has understood and accepted this," he said.

Asked about Islamabad's suggestion that both countries entirely give up their nuclear arsenals, he said disarming 'our nuclear arsenals' will affect a much larger region and not only be limited to India, Pakistan or even South Asia.

"It (nuclear issue) cannot be negotiated bilaterally for this reason. Do not forget that renunciation of the first-strike right is part of the Indian nuclear doctrine," he said.

To a question whether the wars in Afghanistan and Iraq, which the US waged as fight against terrorism, changed India's perception as well, he said the events of September 11, 2001, gave evidence that terrorism could strike everywhere. 

"Democratic societies, which are the target of this terror, need therefore to concentrate their efforts," he said.

"Another development line is the search for multi-polar structures for international cooperation. It is about different centres of power to take joint decisions, which also considers the legitimate interests and concerns of individual states. 

"Take South Asia as an example. India does not at all see itself as a regional super power, which dictates to Sri Lanka or Nepal how they have to resolve their conflicts," he said.

India in fact, he added, had stressed the importance of the United Nations and the Security Council.

"A consent should have been reached there on how to implement best the demand for disarming of Iraq... we were very disappointed that it did not take place," he said.

Vajpayee, however, insisted the US-led war on Iraq had not left the UN and Security Council damaged. "No, it is not. The United Nations will continue to play an important role in the development of a new multi-polar world order."

"We are happy that the problems of this country (Iraq) are again being dealt with in the Security Council," he said.

Asked about his statement only a year ago that he felt that the time had come for a 'decisive battle' for Kashmir and today he was speaking to 'arch enemy' Pakistan, Vajpayee said, "Then and today we had the same objective. We must settle the Kashmir conflict. Naturally we preferred doing this with peaceful means."

He said there was a large similarity of views between India and Germany on the new situation in the world.  "We are seeking a political ethics based on pluralism and consent."

"We do not believe that such a position is directed against the US. To the contrary, we attach such great importance to good relations with America," he said.

About the 'growing concern' in Europe that Hindu fundamentalism was spreading in India, the prime minister said, "Expressions like Hindu fundamentalism are a shameless exaggeration, which is based on clichés. In any democracy, the right to freedom of opinion can express itself at times in the form of extremes.

"It would be equally wrong in India and in Germany to judge individual parties for such members who belong to the far edge of the political groupings. Moreover, you cannot assess an entire country from individual incidents," he said.