BBC News, Islamabad
During a recent trip to Pakistan, the head of a Kashmiri alliance demanding freedom from Indian rule made waves by calling for an end to the armed struggle.
Fighting is still going on in Kashmir, but attacks are down
Faced by outrage from militants committed to the fight, Mirwaiz Umar Farooq later qualified his statement.
He said it was time for the militants to support the peace process rather than completely renounce the insurgency. But he made it clear he thought there was no military solution to the conflict.
But the separatist leader made it clear he thought military strategy had failed, and only a political solution would work.
President Pervez Musharraf seems to agree. In fact, the view of many in Pakistan is that the armed struggle in Kashmir has already stopped, if not ended.
No win situation
For the past two decades nationalist and Islamist militants have fought in Indian-controlled Kashmir, aiming for independence and reunification of the divided region, or its accession to Pakistan.
At least 45,000 people have died with neither goal achieved.
Kashmiri leader Mirwaiz Umer Farooq (centre) sparked outrage
Now, Kashmiri and diplomatic sources say, Pakistan has ended its long time covert support to jihadi militias, support it has never admitted giving.
Over the past year it has taken active steps to prevent the militants from crossing the Line of Control (LoC) that separates Pakistan- and Indian-administered Kashmir.
This includes deploying along the LoC intelligence agents who've worked with and recognise the jihadis, monitoring the militants' porters and guides and, crucially, cutting off funds.
"We still get across the Line of Control, but we're not able to do that much," a member of Jaish-e-Mohammed told the BBC.
The militant group is widely believed to be sponsored by Pakistan's main intelligence agency, the ISI.
"It's a 100% change in strategy from the government side, and they are not helping us even 1% - they are hindering us."
According to sources in Muzaffarabad, the capital of Pakistan-administered Kashmir, the ISI is doing more than that: it's offering the militants assistance to marry or establish businesses.
Privately senior army officers say they've established three camps to help former militants readjust to civilian life. The BBC is aware of at least one transition camp in North West Frontier Province (NWFP) for militants displaced by the 2005 earthquake quake in Kashmir and NWFP.
There also appears to be a quiet understanding with India to allow those from the Indian side to return to their homes.
"They have surreptitiously come till the Line of Control and then surrendered," the Indian army's most senior man in Kashmir, Lt Gen SS Dhillon, told Reuters news agency.
"It is definitely a new trend and an encouraging trend."
Militant sources concur that more than 250 jihadists have returned in the last three to four months.
The policy shift has coincided with a fence built by the Indians along the LoC, and is part of a peace process launched by India and Pakistan three years ago.
All this is having an impact on the level of violence in Indian-administered Kashmir.
Recently the governor there, Srinawas Kumar Sinha, said the number of militancy-related killings had dropped by two-thirds since 2001: to three from 10 a day, the lowest since the uprising was launched.
Observers believe the decision to cut off the Kashmiri jihad was part of President Musharraf's general post-9/11 shift away from activity that could be labelled as sponsoring terrorism.
His resolve was strengthened when militants involved in the Kashmir struggle tried to assassinate him in 2003.
But the army also appears to have calculated that confrontation with India doesn't pay.
"The president and the top brass of the military have realised that if the army wants to continue ruling the country and stay in power, then Pakistan's economy has to improve," says military analyst Hassan Askari Rizvi.
"And Pakistan's economy cannot improve unless you improve relations with India.
"The major beneficiary of Pakistan's economy is the military, because the military is now the state. Therefore they think they can sustain their dominant position in Pakistan only if the internal situation improves."
Indeed, President Musharraf is becoming more insistent about resolving the Kashmir dispute.
He seems to have quietly abandoned Pakistan's traditional stance that Kashmir's final status must be determined by a UN-monitored referendum in both parts of the disputed territory.
Gen Musharraf is now calling for a compromise solution based on mutual self government, demilitarisation and softening, rather than redrawing, the border.
So far the Indians have been unimpressed by either the new proposals or the decrease in cross-border infiltration.
They say Pakistan-sponsored militants are still a threat, and they won't accept that the new policy is irreversible until Islamabad actually dismantles the militant camps. That may not happen any time soon.
"I question whether there is an intent to completely disband them," says military analyst, Ayesha Siddiqa, "because how else do you talk to India?
Major beneficiaries - Pakistan army on patrol
"I don't think there's been sufficient thinking within the top ranks [of the army] on how you engage with India. We don't know what the future looks like, so we wouldn't be putting away all our options."
More immediately, says a senior Western diplomat, it's just too risky, because some of the militant groups have regional networks, with constituencies in both Pakistan and India, and the ability to cause major violence.
"The most dangerous jihadists are not Kashmiri, but Pakistani. To give more on Kashmir would mean taking on the hard-core Pakistani Islamists," he says.
The view here is that to give more on Kashmir, President Musharraf would have to get something in return from India. At the moment he's calling for measures to lower the tension, such as a withdrawal to barracks by the Indian army in Kashmir.
But to tackle the militant infrastructure he needs a mutually acceptable resolution of the Kashmir dispute, says the Western diplomat.
"Confidence-building measures are not enough. You can stop jihad, and in some areas roll it back, but to actually dismantle camps, arrest leaders, and publicly state that a new chapter has been turned, you have to actually turn a new chapter."