Asserting that the current peace initiative with Pakistan is his 'last attempt', Prime Minister Atal Bihari Vajpayee on Friday said terrorism is the biggest obstacle in resolving Kashmir and other issues between India and Pakistan.

Vajpayee said this in an interview with Pakistani newspaper Dawn.

The prime minister will arrive in Islamabad on Saturday to attend the South Asian Association for Regional Cooperation summit.

Sounding conciliatory with hints of some important confidence building measures to supplement the ones made by
the two countries in the past few months, Vajpayee said: "If we could put down violence, terrorism and hostility behind us, I can see no obstacle to establishment of a climate of friendship and cordiality in which we can discuss and resolve all our outstanding bilateral issues, including Jammu and Kashmir."

Vajpayee said there is consensus in India for peace initiatives with Pakistan. "The main question that is raised by critics of my peace initiatives is whether it [the Indian initiative] is getting and will get in future a matching and sustained response from Pakistan," he said.

Pointing out that several factors have contributed to the craving for friendship between the two countries, Vajpayee said:  "First and foremost, popular sentiments are overwhelmingly positive. Second, the imperative of globalisation dictates closer cooperation for faster economic development. Third, in the post-cold war world, it is our national interest to join hands in taking the many common problems we face in our countries with the outside world. And finally, for how long do we want the world to look at India-Pakistan relations either as a threat to global peace or as a promising laboratory in new experiments in conflict resolution?"

The prime minister, however, rejected Pakistan President Pervez Musharraf's four point formula enunciated at the 2001 Agra summit which stipulated that the two countries to accept Kashmir as a dispute, initiate talks, discard solutions not acceptable to each other and reach a solution closer to the positions of both the countries.

Vajpayee said Shimla Accord provided both the countries to have a bilateral dialogue to settle the Kashmir issue.         "In spite of our clear position on the status of Jammu and Kashmir, India has never shied away from a dialogue on the
subject," he added.

On persistent questions on terrorism, Vajpayee said he had frequently expressed his views on terrorism and on how conditions could be created for a sustained dialogue between the two countries. "I do not want to repeat them again, but I will say that a great opportunity exists, and political wisdom lies in grasping it."

Asked if cross-border infiltration is still continuing after Pakistan's decision to implement a unilateral ceasefire, he said the ceasefire and the fencing [of the Indian border] will help greatly in curbing infiltration.

Replying to a question as to why India did not reciprocate with an equally high-profile confidence-building measure, Vajpayee indicated he would say something about it in Pakistan during his visit.