Prime Minister Atal Bihari Vajpayee on Sunday asked South Asian Association for Regional Cooperation countries to be sensitive to each other's security concerns.

"Mutual suspicions and petty rivalries have continued to haunt us," he said addressing the 12th SAARC summit at the Jinnah Convention Centre in Islamabad. "As a result, the peace dividend has bypassed our region."

Any joint endeavour needed mutual trust and confidence, he said. "For many decades South Asian countries, which have a complex and troubled colonial legacies, have been unable to forge an integrated economic understanding circumventing political differences."

He observed that history "should not shackle us" and said, "We have to look forward now with a collective approach in mind.

"We have to change South Asia's image and standing in the world. We must make the bold transition from mistrust to trust, from discord to concord and from tension to peace."

Vajpayee said because of mutual rivalries and inadequate coordination, smuggling, drug trafficking, money laundering and gunrunning flourished across "our borders".

He also mentioned Bhutan's military operation to flush out anti-India terrorists from its soil. "I would like to draw attention to courageous action taken by His Majesty the King of Bhutan and his government against insurgent groups, which were trying to use Bhutanese territory to launch terrorist activities in India.

"It is an outstanding example of sensitivity to the security concerns of a neighbour, which is at the same time in the direct long-term security interest of Bhutan itself," he said.

Vajpayee said development of greater economic stakes in each other would result in greater sensitivity to the concerns of each other. "This would pave the way for more ambitious, but entirely achievable, goals such as free trade area and economic union, open borders and common currency for the region."

Vajpayee referred to the deepening regional cooperation in Africa, Latin America and Caribbean, besides Europe uniting to emerge as the world's most powerful economic grouping. "We have to learn appropriate lessons."

He said closer home, ASEAN members had found it possible not to allow political problems to come in the way of economic cooperation. "All these examples remind us that national economics should triumph over political prejudice in South Asia."

"Our forefathers fought side by side transcending religious, regional and linguistic differences against colonial oppressor in the first war of independence in 1857," the PM said, adding perhaps India, Pakistan and Bangladesh could together celebrate the 150th anniversary of that uprising "in remembrance of our joint struggle against a common adversary".

He expressed satisfaction on agreements reached on terrorism, South Asian Free Trade Agreement and Social Charter, but said, "We should be candid in accepting that the expectations with which SAARC was created have not been fulfilled in the measure of potential."

The PM suggested the creation of a Poverty Alleviation Fund in which he said India would be willing to make initial contribution of $100 million on the understanding that this money would be used entirely on projects within SAARC, but outside India.

He said with rich natural resources, manpower and economic resurgence among the member countries, South Asia could reduce poverty by half and provide safe drinking water and sanitation by 2010 as against the UN Millennium Development Goals targeted at 2015.