The pervasive mood of pessimism in India, generated by the July terrorist attacks in Mumbai, need not necessarily correspond with the real state of play in the official negotiations between New Delhi and Islamabad. But first, a word on the broad gains from the peace process. Since the peace process was launched in June 2004, India and Pakistan have produced an impressive array of understandings on a range of issues, from nuclear arms control to greater contact between the two peoples.

Despite Pakistan’s reluctance to offer either the most favoured nation status or fully implement the South Asian Free Trade Agreement, official trade between the two countries has grown rapidly in the last few years. More visas are being issued today by both embassies than ever before.

Even in Jammu and Kashmir, that enduring bone of contention between the two countries, the guns on the international border, the line of control and on the Siachen glacier have fallen silent for nearly three years. For the first time in decades, the line of control has been opened up for the movement of people between the two parts of J&K. India and Pakistan also have plans to facilitate trade across the LoC.

Beyond confidence building in Kashmir, New Delhi and Islamabad are purposefully negotiating on the question of J&K for the first time since the Shimla Agreement of 1972. It is widely known that the back channel negotiations on J&K have made significant progress. While such sensitive negotiations must necessarily be ‘in camera’, there has been an extraordinary public debate in both countries on potential solutions to the Kashmir dispute. This could only be to the good of both the countries.

All these advances, however, are in danger of being lost after the gruesome terrorist attacks on suburban trains in Mumbai. Prime Minister Manmohan Singh and Pakistan’s President Pervez Musharraf addressed the new questions on the relationship between the peace process and cross-border terrorism in their meeting at Havana two months ago. The answer they came up with was a decision to establish a joint mechanism for cooperation on “counter-terrorism initiatives and investigations”.

The visceral reaction in New Delhi that greeted this mechanism tells us less about the credibility of Indian expectations on counter terror cooperation from Pakistan than the accumulated negativism in the Indian security and foreign policy establishments.

Nevertheless the breathless denunciation of the mechanism even before it was set up boils down to one question. Why would Pakistan want to embark on such cooperation with India? The professional nay-sayers in the establishment and outside merely affirm that cross-border terrorism is a conscious state policy of the Pakistani army, and that any hopes for its reversal are unrealistic.

The assessment that cross-border terrorism is Pakistan’s rational choice begs another question. Under what circumstances or conditions could this rationality change?

If the Pakistan army finds that the costs of cross-border terrorism outweigh the benefits of an engagement with India, there would be reasons for it to change its support to cross-border terrorism. The diplomatic challenge for India, then, lies in changing Pakistan’s strategic calculus on cross-border terrorism. No amount of protestation by New Delhi or the Indian strategic community talking to itself about Pakistan’s perfidies can solve the problem. What are the factors that could alter Pakistan’s approach on cross-border terrorism?

One, a collapse of the peace process, in the face of continuing support to cross-border terrorism, would generate some political costs to Pakistan. Islamabad’s western border with Afghanistan is now under pressure, thanks to the confrontation between Afghanistan and NATO troops there, on the one hand, and Pakistan, on the other. It might not be unreasonable to presume that Pakistan would not want to court new military tension with India on its eastern borders.

Two, for the first time since he took charge of Pakistan in a military coup in 1999, Musharraf looks politically weak. As he seeks to remain in power, through a variety of political manoeuvres in 2007, diplomatic gains from the Indian front might be of some value for Musharraf.

Third, Musharraf can rightly claim that he is the first leader since 1972 to get India to negotiate seriously on the J&K question. Would he want to squander that at the precise moment progress is actually being made on the Kashmir dispute?

Fourth, Pakistan already accuses India of supporting insurgency in Balochistan. It should not be impossible for India to develop a real policy of actively supporting Musharraf’s opponents in Pakistan.

Whether the proposed joint terror mechanism with Pakistan will actually deliver results is not the real question before India. It is about India’s ability to construct, in cold blood, a framework of incentives and disincentives to Pakistan in relation to cross-border terrorism. At the core of that approach must lie India’s political will to undertake two diametrically different options: an early resolution of the J&K dispute or a sustained confrontation.

If India has credibly communicated a reasonable matrix of risk and reward to Pakistan, there is no reason to believe that Musharraf cannot do his sums right or that the foreign secretary level talks this week are doomed to fail.