The diplomatic tussle between the nuclear rivals has raised fresh questions over whether the group would be able to overcome differences between its two biggest members.
"There is clearly a trust deficit between the two countries," Pakistani Prime Minister Shaukat Aziz told reporters as the meeting of the seven-nation South Asian Association for
Regional Cooperation (SAARC) drew to a close on Sunday.
He said that as far as Pakistan was concerned, the core dispute with India was over divided Kashmir.
Indian Prime Minister Manmohan Singh was quick to respond, agreeing about the lack of trust between the two countries and accusing Pakistan of failing to live up to its obligations to
end violence in India by Pakistan-based militants.
"There has been some reduction; but unfortunately it is our feeling that all that needs to be done has not been done," he told reporters. "We have ... assurances that the future will be
different from the past and we eagerly await for that to happen."
He said the two sides needed to build up trust.
"It is our feeling that all that needs to be done has not been done"
Manmohan Singh, Indian prime minister
"Using harsh language in public is not the best way to promote dialogue and understanding," Singh said referring to India-Pakistan peace moves. "I don't think anything great is achieved by conducting this dialogue in full glare of the public."
Singh reiterated that investigations into a series of bomb blasts in New Delhi last month, which killed 66 people, had shown the attackers had "external linkages".
Indian police suspect the bombs were the handiwork of Pakistan-based militants.
The remarks of the Indian and Pakistani leaders came a day after they held bilateral talks that failed to make any headway in their faltering peace process.
Peace talks began after India and Pakistan went close to a fourth war in 2002, but have progressed only in short bursts.
Aziz said the tensions between India and Pakistan were the main reason for SAARC's failure to achieve more.
"SAARC is mired in conflict, you cannot deny it," he said.
"The truth is we need to take issues head-on and come up with solutions, whether it's Pakistan-India or any other countries in the region."
"There is clearly a trust deficit between the two countries"
Shaukat Aziz. Pakistani Prime Minister
About 1.5 billion people live in the SAARC member states, about a third of them in abject poverty.
The forum has initiated few multilateral moves in its 20 years, mostly because of tensions between its members.
At its meeting, SAARC decided to include Afghanistan in the group as a full member and to consider an application by China to get observer status.
The group also signed an agreement to avoid double taxation, as well as one on customs duties. It also agreed to set up a council to arbitrate on trade disputes.
India accuses Pakistan of failing
to crack down on militants
Kashmir, the nub of the problem between India and Pakistan, is the only Muslim-majority state in Hindu-dominated India and is claimed by both countries.
Two of their three wars since independence in 1947 have been over Kashmir.
India accuses Pakistan of aiding insurgents in Indian Kashmir, although Islamabad denies giving anything more than moral and political support.
Despite the overhang of India-Pakistan tensions, Bangladesh Prime Minister Khaleda Zia said at SAARC's closing ceremony that member states were determined to make the forum work.
"We have ... a broad consensus on the continued importance and relevance of SAARC," she said. "We also have a remarkable unanimity of views on steps needed to make regional cooperation an effective instrument for positive change."