India's prime minister has said a borderless Kashmir and more autonomy for the areas India administers could help resolve the dispute with Pakistan.
Thousands have died in the Kashmir conflict
Manmohan Singh said India and Pakistan should work together to make borders "meaningless and irrelevant".
The "sky is the limit" once Pakistan understood where India could and could not be flexible, he told reporters.
Kashmir has been the cause of two of three wars between India and Pakistan since partition in 1947.
Mr Singh spoke at length on foreign and domestic issues during an hour-long meeting with foreign journalists at his Delhi residence on Monday evening.
He hinted at what Delhi had in mind to resolve the Kashmir dispute, which has bedevilled relations between South Asia's nuclear-armed neighbours for over half a century.
The prime minister began by listing what would not be acceptable to India.
"India will not accept any further partition of the country on religious lines.
"I also do not have the mandate for allowing redrawing of boundaries."
There was nothing really dramatic in this list of don'ts. It has been Delhi's stated position for some time now.
But it is what he said was acceptable and possible that provides hope.
Mr Singh said the "sky is the limit" once the Indian position - about what was not possible - was understood by Pakistan.
"We [India and Pakistan] share a number of similarities and should work together at finding a solution which makes borders meaningless and irrelevant. So it should not matter whether a person is living in Srinagar [in Indian-controlled Kashmir] or Muzaffarabad [in Pakistani-controlled Kashmir]."
He also talked about giving greater autonomy to Jammu and Kashmir, saying the state already had a unique status with its own constitution.
Musharraf said recently a Kashmir solution was within grasp
"We should work towards strengthening democratic traditions and self-government in the valley," he said.
It cannot be a coincidence that Pakistan's President Pervez Musharraf has also echoed similar sentiments in the recent past.
Even while he has consistently stressed that the international Line of Control separating the two Kashmirs can never be accepted as a permanent border by Islamabad, the Pakistani president has also talked about a soft border and a situation where borders become less and less relevant.
The Indian prime minister refused to commit to any time frame on resolving the Kashmir dispute, saying it was a historical and complicated issue.
"But the peace process is on track and I look forward to more meetings with President Musharraf," he said.
However he warned that a major terror attack could derail the process. He also asked Pakistan to do more to dismantle militant camps still operating inside Pakistani-administered Kashmir.
Mr Singh was in relaxed and expansive mood during his first interaction with foreign journalists since taking office a little over a year ago.
Mr Singh denied Mrs Gandhi 'interfered'
He said Indian foreign policy was guided by one interest alone.
"We want to create an international environment which is conducive to the social and economic development of India. And for that to happen the first requirement is to have a tranquil neighbourhood."
He spoke about Bangladesh and Nepal as two neighbours where Delhi needed to do more to have "even better" relations.
He described as historic the recent visit to Delhi by the Chinese prime minister and said that the most important outcome of the visit was the agreement aimed at resolving outstanding boundary disputes in a peaceful manner.
He also talked about how much more needed to be done in terms of investment in social and physical infrastructure.
And he discussed his relations with Sonia Gandhi, head of India's governing coalition. She declined the prime minister's post and anointed Mr Singh instead, leading the opposition to accuse him of being her puppet.
"Of course as the chairperson of the governing coalition she does contribute to policy making," Mr Singh said.
"But there's never any interference in the day-to-day functioning of the government."