Pakistan has welcomed Indian PM Manmohan Singh's call for a new peace initiative between the two countries.
The new bus service will link the holiest sites of Sikhism
Indian PM Manmohan Singh offered Islamabad a treaty of peace, security and friendship while inaugurating a new bus service between India and Pakistan.
He also praised President Pervez Musharraf for taking steps to curb terrorism and extremism.
Pakistan's foreign ministry spokesperson said that India's overture reflected many positive sentiments.
These included a strong acknowledgement by Delhi of the need to move forward on the Jammu and Kashmir issue, the Pakistani statement said.
The BBC's Nick Bryant in Delhi described the speech by Manmohan Singh as a clear attempt to breathe new life into what has been in danger of becoming a moribund peace process.
The two sides have been engaged in a peace process since January 2004.
The new bus service connecting Sikhism's two holiest sites, Amritsar in India and Nankana Sahib in Pakistan is the latest in a series of confidence building measures.
Mr Singh said that a solution to the problem of Kashmir had to be based on ground realities.
"We are not afraid of discussing Jammu and Kashmir or of finding pragmatic, practical solutions to resolve this issue as well," he said.
He said that borders between the two sides could not be redrawn, but they could be made "irrelevant".
"I have often said that borders cannot be redrawn but we can work towards making them irrelevant - towards making them just lines on a map," he said.
The speech was perhaps just as important for its symbolism as its substance, the BBC's Nick Bryant says.
It was delivered in the Punjab, the great fault line of India and Pakistan's partition in 1947.
The prime minister, who was born in what is now Pakistan, spoke in his native tongue of Punjabi which lent more emotion to his speech.
Pakistan has long complained that India simply wants to maintain the status quo in divided Kashmir and that the pace of the peace process is too slow.
On Friday the foreign ministry spokesperson said: "We need bold steps by the leadership of both countries to resolve the outstanding issues."