His comments came as pledges by donors reached $5.4 billion in quake aid on Saturday, surpassing the amount sought by the government for relief and reconstruction.
"Let us together solve the Kashmir dispute once for all," Musharraf said at an international donor's conference in Islamabad.
"Let this be the Indian donation to Kashmir," he said to applause from the conference, which included a minister-level delegation from India.
"I sincerely and genuinely believe that the challenge of this earthquake can be converted into an opportunity of a lifetime that was never available to India and Pakistan to improve its relations," the military leader said.
India and Pakistan, both nuclear powers, have fought two of their three wars over the Himalayan territory of Kashmir, which they each hold in part but claim in full.
They have opened all five of the crossing points on the Line of Control that divides the region to allow humanitarian supplies through to people affected by the earthquake. It is the first time the crossings have been opened in almost 60 years.
"Fleeting opportunities do not come every day... If leaders fail to grasp fleeting opportunities, they fail their nations and they fail their people"
"Fleeting opportunities do not come every day," Musharraf said. "If leaders fail to grasp fleeting opportunities, they fail their nations and they fail their people.
"Let good and success and let happiness emerge from the ruins of this catastrophe, especially for devastated people of Kashmir."
Pakistan had hoped to get $5.2 billion for rebuilding after the 8 October quake, which killed 86,000 people in Pakistani territory and another 1350 in neighbouring India.
International development and lending agencies and about 50 nations attended the donor conference on Saturday in Islamabad, raising $3 billion on top of $2.4 billion pledged earlier.
"The rough total we have as of now is $5.4 billion," Prime Minister Shaukat Aziz told delegates. "We are really touched by your generosity, by your feeling of sharing our grief.
"Everything will go, each and every cent we receive and goods ... for the earthquake-affected areas," Aziz said.
"We in the government are committed to total transparency, total accountability."
Aziz (R) reassured donors of
Among the key donor nations, the United States offered $510 million, nearly tripling an earlier pledge. Saudi Arabia offered $473 million and China $300 million.
Of the major international lending and development institutions, the Asian Development Bank pledged about $1 billion, the World Bank another $1 billion and Islamic Development Bank $501 million.
The United States said it would stand by Pakistan, a key ally in its "war on terror", during its hour of need.
America's turn to give
"The US pledges today our continuing support to our friend and ally, Pakistan," USAid chief Andrew Natsios said.
He said it was America's turn to give, following the generosity of the international community in helping the United States recover from hurricanes Katrina and Rita earlier this year.
Washington has also sent 1200 soldiers, 24 helicopters, heavy equipment and two mobile hospitals to the quake zone.
Asian Development Bank assistance will include the creation of a planned $300 million fund next month to focus on transport, power, health, education and governance, the bank said.
Washington has sent 24
helicopters to help relief efforts
Other funding will come from grants and the reallocation of money from existing loans to Pakistan, it said.
"Having seen firsthand the courage and resilience of the survivors, I am convinced that the affected areas will need to not only fully recover, but be built in a way to provide a better future for the children," the president of the Philippines-based bank, Haruhiko Kuroda, said in a statement announcing the pledge.