India and Pakistan have confirmed that the peace process between the two countries has resumed.
This is Mr Mukherjee's first visit to Pakistan
India's Foreign Minister Pranab Mukherjee has been meeting Pakistani officials in Islamabad, including President Pervez Musharraf.
After their meeting, Mr Musharraf said conditions were good to "resolve outstanding issues" between the two neighbours, including divided Kashmir.
The two sides have agreed to hold another round of talks in March.
Mr Mukherjee's visit and his warm reception are seen as evidence that the peace process is moving forward again, after being disrupted by the Mumbai blasts last year, says the BBC's Barbara Plett in Islamabad.
Officials examining proposals to withdraw troops from the disputed Siachen Glacier are to be instructed to meet soon to move the process along.
The nations began peace moves in 2004 but progress slowed after India blamed Pakistan for last year's Mumbai blasts.
Mr Mukherjee's visit is the first high-level contact between the two countries since the September meeting between Gen Musharraf and Indian Prime Minister Manmohan Singh in Cuba.
The two leaders met on the sidelines of the Non-Aligned Summit and decided to resume talks.
The Indian foreign minister also met his Pakistani counterpart, Khursheed Ahmed Kasuri, for talks on a number of bilateral issues.
In his statement, Mr Musharraf said the confidence-building measures the two countries had made over the last few years had "created a conducive atmosphere to resolve outstanding issues".
More soldiers die of cold than bullets on the Siachen Glacier
"All the issues were discussed, including the difficult ones," Indian foreign ministry spokesman Navtej Sarna said after the meeting.
Our correspondent says an agreement on the Siachen Glacier would signal growing confidence between India and Pakistan.
It would be the first conflict between the two countries resolved by the peace process.
But the divided region of Kashmir remains the big sticking point
India and Pakistan have fought three wars, two of them over Kashmir, since both became independent from British rule in 1947.
The nuclear-armed neighbours nearly went to war a fourth time in 2002.
Travel and sport links have been restored since then but little progress has been made over Kashmir.
Last month, President Musharraf suggested Pakistan could give up its claim over the disputed territory of Kashmir if India accepted his peace proposals.
He called for a phased withdrawal of troops in the region and self-governance for Kashmiris.
Earlier this week, Prime Minister Manmohan Singh spoke of his hopes for lasting peace in South Asia.
"I dream of a day when one can have breakfast in Amritsar, lunch in Lahore and dinner in Kabul. This is how our forefathers lived. That is how I want our grandchildren to live," he said.