Noting that cross-border terrorism continued to affect Indo-Pak relations, the Ministry of External Affairs has said the dialogue process made some progress during last year but the ties remained 'well short of potential' and are yet to be 'fully normalised'.

The Ministry maintained that the dialogue process hinges on January 6, 2004 commitment of Pakistan President Pervez Musharraf not to permit any territory under Islamabad's control to be used to support terrorism against India.

'India seeks a cooperative and constructive relationship with Pakistan based on trust and confidence in an atmosphere free of violence', the MEA said in its annual report.

It underlined that New Delhi believes in settling all issues, including Jammu and Kashmir, through bilateral talks and towards this goal, has pursued a policy of constructive engagement with Islamabad to establish peaceful, friendly and cooperative relations.

'The composite dialogue made some progress during the year. But India-Pakistan relations remained well short of their potential and are yet to be fully normalised', the MEA said.

Citing various developments that took place during the last year in the context of Indo-Pak ties, it said cross-border terrorism continued to affect bilateral ties.

The report referred to the Mumbai blasts of July 11, 2006, saying it had 'cross-border linkages' and led to postponement of Foreign Secretary-level talks.

India had blamed elements based in Pakistan for the deadly blasts on local trains that killed nearly 200 people and injured 800 and put off the Foreign Secretary-level talks slated for July 20.