India accuses Pakistan of fomenting militants in Kashmir
Pakistan says air and land transport links with India will be restored shortly.
Prime Minister Zafarullah Jamali made the announcement in the latest sign of a thaw in relations between South Asia's two nuclear powers.
Mr Jamali also said he was optimistic that "a good solution" could be found to the two sides deep differences over the disputed territory of Kashmir.
The latest moves come as US Deputy Secretary of State Richard Armitage embarks on a diplomatic tour of the region.
Mr Jamali told journalists in Islamabad that Pakistan would take a number of measures seen as steps to building confidence between his government and that of Atal Behari Vajpayee's in India.
- Resuming air, road and rail links
- Restoring sporting ties
- Removing trade restrictions
- Releasing detained Indian fishermen
The BBC's Zaffar Abbas in Islamabad says the decision to remove trade restrictions comes as a surprise and is likely to remove one of the last few stumbling blocks to the start of formal talks.
"I am hopeful a good solid solution should be coming forward on all issues, of course including the Jammu and Kashmir issue," Mr Jamali said.
He also said Pakistan would seek to restart talks with India over the two countries' nuclear weapons.
"Nuclear realities in our region impose certain obligations and responsibilities on our two countries.
"It is therefore important for both India and Pakistan to engage in serious discussions for nuclear and strategic stability in our region," Mr Jamali told reporters.
Last week both sides said they would resume full diplomatic relations after more than a year of tension.
Earlier, Mr Jamali had invited Mr Vajpayee to Islamabad for talks.
Correspondents say such a visit is unlikely to come about quickly.
The Indian Government is wary of such high-profile talks as similar efforts in recent years to resolve differences over Kashmir have ended in failure.
Nevertheless, the United States has welcomed the improvements in relations.
They bring to a close a period of 16 months which, at its worst, saw both sides amass more than one million troops on their border.
The US led international attempts to stave off war.
The breakdown in relations was triggered by an attack by armed gunmen on the Indian parliament in December, 2001.
India said the attack was the work of Pakistan-based militants supported by the government in Islamabad.
President Pervez Musharraf's government has always denied the accusations.
There has been speculation in South Asia that the United States has been the driving force behind the recent improvement in relations.
If India is ready to denuclearise, we would be happy to denuclearise - but it will have to be mutual
The BBC's Jon Leyne in Washington says that although US Deputy Secretary of State Armitage - who will visit India, Pakistan and Afghanistan - says he is not bringing a peace plan, Washington has a big interest in improving relations between the two historic enemies, now both American allies.