NEW DELHI/ISLAMABAD, 21 January — India and Pakistan refused to budge from their hard-line positions yesterday with Islamabad insisting that Kashmir is the core issue in the decades-long dispute between the two countries and New Delhi ruling out de-escalation along the tense border. Prospects of peace talks also remained elusive with troops of the two countries exchanging small arms fire. The firing was described as "routine and nothing abnormal" by Indian officials in Jammu and Kashmir, while a Pakistani Army official said, "Indian machine-gun and light machine-gun fire continued throughout the night." Kashmir is the core issue, insisted President Pervez Musharraf in an interview with the New York Times. "Indians say, ‘let’s discuss all issues,’ but sometimes they leave out Kashmir," he said. As India and Pakistan have an obligation to avoid war, they should hold discussions, eliminate what each finds unacceptable and reach an agreement on the basis of alternatives to long-held positions, said Musharraf.

India asserted its formations will remain on Pakistan’s border until it has extradited 20 alleged fugitives, and rejected as non-serious a similar counter-demand made by Islamabad to the government in New Delhi. The strongly worded statement came from Parliamentary Affairs Minister Pramod Mahajan, who is widely seen as Prime Minister Atal Behari Vajpayee’s main hatchet man. Mahajan, speaking to Star TV network, appeared to minimize the importance of a crackdown by Musharraf on extremists, as Defense Minister George Fernandes speaking in the United States said his army will hold the borders.

Musharraf last week began the clamp-down on religious extremists in Pakistan and arrested hundreds, but both Mahajan and Fernandes said a hand-over of some of the 20 most wanted by India would be a precondition to the border de-escalation.

On Saturday, Pakistan Foreign Minister Abdul Sattar surprised India saying Islamabad too had its list of terrorist suspects it wants extradited from India. "It is stalemate... We cannot take this (Pakistani) list seriously. Pakistan, even as a joke, had never made an allegation that India was sponsoring cross-border terrorism. So how can we take this seriously?" Mahajan said of Sattar’s weekend announcement.

Mahajan also rejected any talk between India and Pakistan as long as Islamabad did not accept New Delhi’s demands. "One should not fear to talk and one should not talk out of fear but there should be an atmosphere for talks... But how can there be talks when soldiers are standing eyeball to eyeball," Mahajan said, and rejected the ongoing Musharraf-led crackdown.

US Secretary of State Colin Powell told Fox News that the standoff between the two countries has eased in the last week, and both sides are committed to a diplomatic solution. "Based on my conversations in both Islamabad and in New Delhi, I think things have improved a little bit in the last week," Powell said in a pre-recorded interview from Tokyo, where he is attending a conference on aid to Afghanistan.