Powell expressed optimism despite two attacks this week in Indian-administered Kashmir in which seven Hindu pilgrims and eight army soldiers were killed.
An Islamist separatist group based in Pakistan claimed responsibility, but significantly, Indian officials did not blame the Pakistan government itself, as they have in the past.
"Even with what happened today in Kashmir, over the last 24 hours, I think both sides are now committed to improving the dialogue," Powell said in a meeting on Tuesday with the editorial board of the Washington Times, according to excerpts released by the US Embassy in New Delhi on Thursday.
Dispute over Kashmir a
source of constant tension
Powell said the two nuclear rivals were not presently trying to arrange a summit of their two leaders.
Using an analogy from American football, he said the governments are not attempting "deep passes," but "a ground game." That involves moving the ball toward the goal yard by yard.
"I like ground games. Ground games tend to gain ground," Powell said. "We have been gaining ground in bringing the Indians and the Pakistanis together."
The neighbours recently restored their ambassadors, reopened a cross-border bus service, and their leaders agreed to attend a summit of the South Asian Association for Regional Cooperation in Pakistan next January.
Indian policemen disciplined
"We have been gaining ground in bringing Indians and Pakistanis together."
-- US Secretary of State
Meanwhile, a senior police officer in Indian-administered Kashmir was suspended and a junior officer dismissed for their alleged involvement in fudging DNA samples of five men slain in the wake of a massacre, officials said in Srinagar on Thursday.
Police had claimed the five were involved in the gunning down of 37 Sikh villagers in Chattisinghpora on 20 March 2000 on the eve of a historic visit of then US President Bill Clinton to New Delhi.
Police had said the five were foreign members of the Islamic separatist group Lashkar-e-Taiba and were killed in an armed encounter.
But relatives said the five were innocent civilians. DNA samples from the bodies were said to confirm the police's claim.
But two Indian forensic agencies confirmed last year that the samples were fudged, and fresh samples taken in April 2002 confirmed relatives' allegations that the five men had nothing to do with the massacre.
India says Pakistan aids separatist fighters on India's side of a ceasefire line that divides Kashmir between the two countries.
Pakistan says it only morally supports their cause. The two countries have gone to war over the dispute twice since their independence in 1947.