Middle-ranking foreign ministry officials said they had reached a "broad understanding" on the framework for peace talks after two days of talks ended on Tuesday.
On Wednesday, Pakistani Foreign Secretary Riaz Khokhar met his Indian counterpart Shashank to iron out any remaining differences over the structure for talks, which will range from their dispute over Kashmir to nuclear security.
Essentially the neighbours aim to take up where they left off when a "composite dialogue" over eight issues ran aground in 1999 and finally collapsed at a summit in the Indian city of Agra in July 2001.
Under that formula, foreign secretaries would meet regularly to discuss the Kashmir dispute, as well as "peace and security" - code for a range of confidence-building measures meant to reduce the risk of nuclear and conventional war.
Officials from other ministries would also tackle a range of issues, including trade and economic links, people-to-people contacts and disputes over water sharing, maritime boundaries and the Siachen glacier, the world's highest battlefield.
Diplomats and commentators see signs that both sides genuinely want to make a fresh attempt for peace and to avoid the pitfalls that have undermined previous attempts to mend their differences.
But the two remain far apart in their dispute over who should control Kashmir, the cause of two of their three declared wars.
EU urges restraint
The EU's External Relations Commissioner Chris Patten, who is due in Islamabad on Wednesday, said in Kabul he was delighted the talks had started, but urged restraint.
The talks so far have involved
"I think if we're sensible, we won't get too excited and won't start expecting early or substantial breakthroughs.
"I think this is going to be a long process, the negotiators are
dealing with some terribly difficult issues."
The two sides hope to announce a timetable for initial meetings later on Wednesday, with talks on all issues likely to start within the next six months, spanning elections in India expected in April, officials said.
Pakistan also hopes to get a commitment to higher-level talks at foreign minister and summit level, to maintain the momentum generated by last month's meeting between Pakistani President Pervez Musharraf and Indian Prime Minister Atal Behari Vajpayee.
Pakistan has also proposed talks on a "strategic restraint regime", so that both sides maintain a minimum nuclear deterrence and avoid a costly nuclear and conventional arms race.
India and Pakistan are seen to be
genuinely interested in peace
"That would be dealt with under the banner of peace and security," an official said.
"But the modalities have to be worked out, whether it would be at foreign secretary level or whether it would require separate meetings."
Pakistan Foreign Minister Khurshid Kasuri, meanwhile, urged India to end rights violations in Kashmir.
"It would be in Pakistan's interest that Kashmir pacifies once the talks start and there's peace in the Valley," he told the Indian Express newspaper.
The last serious attempt to make peace was sabotaged by the Pakistani military in 1999 when it sent troops and militants across the Line of Control to occupy the icy heights of Kargil,
prompting fighting which cost hundreds of lives.
Indian hardliners were blamed for sabotaging an attempt to revive the process in 2001.
Musharraf was widely blamed for Kargil as army chief of staff at the time.
These days, as president, he has restyled himself as a peacemaker who has offered to meet India half-way in an effort to end more than five decades of conflict.