"We will allow any amount of people coming across the Line of Control to meet their relatives and assist with the reconstruction effort," Musharraf said on Tuesday during a visit to the ravaged Pakistani Kashmir capital of Muzaffarabad.
He also proposed that the political leaders of both sides should interact to "assist each other with the reconstruction efforts".
India swiftly accepted Musharraf's proposal. "We welcome the offer that has been made. This is in line with India's advocacy of greater movement across the LoC for relief work and closer people-to-people contacts," Navtej Sarna, India's Foreign Ministry spokesman, said on Tuesday.
"India is willing to facilitate such movement; but we await word from Pakistan about the practical details of implementing this intention," Sarna added.
Around one-third of the scenic Himalayan territory is under Pakistani control and two-thirds is administered by India.
Kashmir was devastated by the 8 October earthquake which killed at least 41,000 people. Officials say tens of thousands died on the Pakistani side and more than 1300 in the Indian sector.
Visiting Muzaffarabad, Musharraf said: "No formal proposal has been made to New Delhi. It is being put across through you [the media]. The modalities of this need to be worked out ... and we expect a response to be forthcoming from the Indian side."
Musharraf also said he wanted mobile telephone companies to open "linkages with their brethren" to let Kashmir's divided families talk to one another after the quake.
India says Kashmir's separatist
movement is run from Pakistan
Pakistan's Foreign Ministry said separately that mobile telephone service would be extended to Kashmiris living near the heavily militarised Line of Control.
India said on Tuesday it would allow Kashmiris in its part of the divided region to make free telephone calls to Pakistan for the next two weeks so families in the Himalayan territory could find out what happened to loved ones in the quake.
New Delhi cut communications between its Jammu-Kashmir state and all of Pakistan in 1990 in an effort to stymie a Muslim uprising there that it charged was being run from Pakistan, an allegation Islamabad denies. Pakistanis can, however, still make direct calls to Indian Kashmir.
Calling centre locations
Two of the calling centres would be set up in the towns of Uri and Tangdhar, the worst-hit in India's portion of Kashmir. The other two centres would be located in Srinagar and Jammu - the twin capitals of Jammu-Kashmir state, the statement said.
The centres will start functioning on Wednesday and will provide free service, the statement said.
"What can I say! Our prayers have been answered," said Mohi-ud-Din Najar, a resident of Srinagar, whose 19-year-old nephew was killed in the devastating quake in the capital of Pakistani Kashmir, Muzaffarabad.
Pakistan is struggling to meet
the needs of quake survivors
His sister was injured, too.
"The past days have been hell for us," Najar said. "Now my mother can speak to her daughter. We can share our grief and try to console her."
Pakistan has accepted three large consignments of quake aid from India - comprising tents, plastic sheets, medicines and food.
New Delhi has agreed to a Pakistani request to use helicopters in a no-fly zone along the Line of Control.
But on Tuesday India rejected Pakistan's request for helicopters without crews for relief operations after the earthquake, saying its pilots must travel with the aircraft.
Islamabad previously refused an Indian offer to send foot patrols into Pakistani villages lying close to the Line of Control.
Meanwhile, the US government has disbursed $100,000 in assistance for thousands of earthquake victims in the Indian portion of Kashmir, a US Embassy statement said on Tuesday.
Half of the donation went to the Indian prime minister's National Relief Fund and the rest was provided for relief efforts by aid group Save the Children, the statement said.