Vajpayee's decision to take a three-day break in the Himalayan holiday resort of Manali is seen by analysts as a signal that war is not imminent, despite the government facing severe internal pressure to launch military strikes on Islamic groups based in Pakistan.

"It is the brightest sign for peace we have seen in a long time," said political analyst Mahesh Rangarajan. "The PM would not be taking a holiday if India was about to declare war on Pakistan."

Leading the diplomatic thrust, meanwhile, was European Union Commissioner for External Relations Chris Patten, who held talks here for about 30 minutes early afternoon with Brajesh Mishra, the powerful National Security Adviser and Vajpayee's principal secretary.

The meeting was to be followed by talks between Indian Foreign Minister Jaswant Singh and Patten, who on Thursday met Pakistan President General Pervez Musharraf in Islamabad.

More significantly, at least for the traders on the Bombay Stock Exchange, is the visit to the region next week by British Foreign Secretary Jack Straw and the week after by US Deputy Secretary of State Richard Armitage.

Dealers on the Bombay bourse, where share prices rebounded Friday after seven days of losses, said the June 4 visit of Armitage is seen as one of the key diplomatic initiatives to cool down simmering tensions in the region.

Dealers said near-term war fears had also slightly eased off after Vajpayee held a press conference on Thursday where he toned down earlier bellicose rhetoric and appeared "non-aggressive".

This had led to the perception that war is not an "immediate" possibility, a dealer said.

Aside from visits by high-powered officials to South Asia, international role players have been engaging in a flurry of telephonic diplomacy.

US State Department deputy spokesman Philip Reeker said in Washington that US Secretary of State Colin Powell had spoken three times Thursday to Straw.

Powell, currently in Moscow with President George W. Bush, also spoke twice to Musharraf, Reeker said.

Powell was expected to have follow-up calls with top Indian officials, he added.

The daily Hindustan Times, meanwhile, Friday quoted unnamed government officials as saying India has given Pakistan two months to reign in Islamic militants before deciding whether or not to exercise a war option.

"India's cabinet committee on security endorsed the decision to give ... Musharraf more time to implement his promise of putting an end to the infiltration of terrorists into Jammu and Kashmir," the daily said.

On the frontline in Kashmir, Indian and Pakistani troops pounded each other with mortars for an eighth successive day Friday, sending the death toll in the shelling to 36, with 26 Pakistanis and 10 Indians killed, according to police figures.

The troops began the artillery duel on Friday last week following an attack three days earlier by Islamic militants on a bus and army camp in Jammu, Indian Kashmir's southern winter capital, which left 35 people dead.

The Times of India said Friday the government had decided to step up shelling of Pakistani positions along the frontier and the disputed Line of Control, the de facto border in Kashmir.

The paper, quoting unnamed officials, said Indian soldiers had also begun "aggressive patrolling" along the frontier.

"The idea is to raise the costs to the terrorists crossing the Line of Control and to those who support them," the daily quoted one official as saying.

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