Indian foreign secretary Shiv Shankar Menon and his Pakistani counterpart Riaz Mohammad Khan wrapped up two days of talks in Islamabad marking the start of the fourth round of the three-year-old negotiations.

"2007 is a critical year and can prove to be a watershed," Khan told a joint news conference at the Pakistani foreign ministry after the talks between the nuclear-armed rivals.

Pakistan and India had dealt with "issues that have divided us" and that had "made it possible that we move from problems and disputes management to resolution of problems and disputes," Khan said.

The fact that this part of the peace dialogue coincides with the 60th year of India and Pakistan's independence "underscores the need for turning a new page in our relations," he added.

India's Menon said that during meetings with Pakistani Prime Minister Shaukat Aziz and Foreign Minister Khurshid Kasuri late Tuesday he found there was "clear political will on both sides to make all-round progress."

"We agreed that in the fourth round we anticipate that considerable progress can be made," he added.

The diplomats said Wednesday's talks centred on the Himalayan territory of Kashmir. Tuesday's session was devoted to a review of the previous round of talks and on general peace and security including nuclear weapons.

Kashmir is split between the two countries and claimed by both in full. The territory has caused two of the three Indo-Pakistani wars since independence in 1947.

India and Pakistan were "engaged in the most sustained and intensive dialogue that they ever had" over Kashmir, Menon said.

The officials said that while they recognised the need to make progress on a solution to the Kashmir problem, on Wednesdsay they focused on "confidence-building measures" such as transport links created since 2004.

Pakistan had also suggested new measures such as sports events, a helicopter service and a postal service in Kashmir, Khan said.

He said the two countries' defence secretaries would soon hold talks on ending a 20-year standoff on the Siachen glacier in Kashmir -- dubbed the world's highest battlefield.

Kashmir has been the sticking point throughout the peace process which was launched in January 2004, less than two years after India and Pakistan massed hundreds of thousands of troops along their border.

The countries also held tit-for-tat nuclear tests in 1998, alarming the world, and fought sporadic clashes in the Kargil region of Kashmir in 1999.

The talks in Islamabad follow the February firebombing of a "Friendship Express" train in India that killed 69 passengers, mostly Pakistanis returning to their homeland.

But the two countries did not allow the attack to disrupt the peace process, vowing to boost cooperation in the fight against terrorism and to share information.

Khan and Menon said that India had given Pakistan a list of passport numbers to help identify 19 of whose who died in the blast.

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