At the end of two days of talks in the Indian capital, Shyam Saran, the Indian foreign secretary with his Pakistani counterpart Riaz Mohammed Khan said on Wednesday that the possibility of creating a "disengagement zone" in Kashmir had been broached.
Saran told the Press Trust of India news agency: "Such a disengagement zone would have to acknowledge the positions which are currently there, and from where there would be redeployment (of troops) taking place."
"We are trying to work out modalities on how this would be actually translated into an agreement," Saran said.
Khan, meanwhile, told reporters that Islamabad had asked India to allow "self-governance" in Kashmir and urged a cut-back of troops in the heavily militarised region.
He said: "There is a commitment by both sides to reach a final settlement (on Kashmir)… various ideas, any ideas need to be discussed."
But while both countries confirmed their commitment to keep their stuttering peace process on track, New Delhi criticised Islamabad for not doing enough to stem the flow of Islamic militants into its zone of Kashmir.
Saran (L) and Khan (R) discussed
creating a disengagement zone
Saran said: "While some steps have been taken ... all steps (have) not been taken.
"There is no end to cross-border terrorism. The infrastructure of terrorism is still in place.... We don't want this to hang on as a question mark over the peace process."
Manmohan Singh, India's prime minister meanwhile, during a meeting with Khan said he wanted "permanent peace with Pakistan" and accepted in principle an invitation to visit Pakistan.
A joint statement issued at the end of the talks, which marked the start of a third round of negotiations since the arch-rivals began talking peace two years ago, said the two sides "reaffirmed their commitment to move forward the peace process in a meaningful way".
The two officials agreed to mandate two expert groups to continue consultations on "security concepts and nuclear doctrines to enhance mutual trust and avoid conflict", the statement said.
Both sides would also work towards an agreement "on prevention of incidents" between naval vessels and aircraft of the two countries.
Experts would also discuss proposals that "no development of new posts and defence works" be allowed along the disputed border in Kashmir and that monthly meetings be held between local military commanders in the region.
The rivals would also work towards opening two more points along the de facto border in Kashmir, known as the Line of Control, where Kashmiris on both sides of the divide could meet.
In November, India and Pakistan agreed to open five meeting points after the 8 October South Asian earthquake which claimed around 75,000 lives in the region.
The officials also reached consensus on starting a bus service between between Poonch in the Indian-administered region and Rawalakot in the Pakistani zone of Kashmir before April.
A new India-Pakistan bus service
is planned to be launched
A bus service between Srinagar, capital of Indian Kashmir and Muzaffarabad, the main city in Pakistan-administered Kashmir, began last April after almost 60 years in what was seen as the first tangible fruits of the peace process.
India and Pakistan each hold the Himalayan region of Kashmir in part but claim it in full. The dispute has kept ties between the neighbours tense for almost six decades and triggered two of their three wars since 1947.
More than 40,000 people have been killed since the 1989 start of an anti-Indian insurgency in Kashmir.