BBC correspondent in Srinagar
A plan for a return of Kashmiri Hindus has been badly hit
Two days after the massacre of 24 Hindus in the village of Nadimarg, authorities and observers in Indian-administered Kashmir are still trying to guess the motive.
India has blamed Pakistan-backed militants for the killings but has not identified any organisation.
Militant groups have accused Indian authorities of masterminding the carnage to undermine what they call their "freedom struggle".
The main separatist alliance, the All-Party Hurriyat Conference, says there should be an impartial inquiry and has offered to co-operate.
One of the main effects of the killings has been to deal a severe blow to the state government's plan to bring back some of the 100,000 Kashmiri Pandits - Hindus who lived in the Muslim-majority region - who fled their homes following the outbreak of armed conflict 13 years ago.
Mourners grieve for the victims of the attack
The state's deputy chief minister, Mangat Ram Sharma says the government had identified Kheerbhawani, near Srinagar, and Mattan, in Anantnag district, as two places in which to rehabilitate the Pandit community.
The government had planned to build flats, hospitals and other infrastructure projects at both sites, but this now looks uncertain.
Visiting Deputy Prime Minister LK Advani had to issue a pledge to relocate fearful Pandits still living in the area around the massacre.
But he told the mourners in Nadimarg directly that this would play into the hands of those who carried out the killings.
Some officials say the massacre is a rebuff to state Chief Minister Mufti Mohammed Sayeed, who has been suggesting that Kashmir is returning steadily to normal.
Before assuming power, Mr Sayeed made reconciliatory gestures to militants that led to some calling him a "semi-separatist".
He promised to arrange talks between the Indian Government and militants, and to minimise violations of human rights by Indian security forces.
He has since angered militants by playing down his talks pledge.
The deputy chief minister, Mr Sharma, has dismissed suggestions the massacre at Nadimarg represents a failure of government policies.
But some observers say Mr Sayeed will now find it harder to pursue policies that have already drawn flak from opponents.
The massacre, they say, may even force him to abandon his pledge to provide a "healing touch" to a region wracked by conflict.
Who will gain from the derailing of his policies remains to be seen.