Prime Minister Manmohan Singh on Wednesday met Pakistan President Asif Ali Zardari on the sidelines of the UN General Assembly session in New York.
The meeting was held at the Millennium Hotel where Zardari is residing.
This is the first meeting between the two leaders and comes hours after Zardari said Pakistan would pursue the bilateral route for the resolution of the Kashmir issue.
Dr Singh and Zardari are understood to have discussed plans to launch cross-LoC trade in Jammu and Kashmir. The issue of cross-border terrorism is also understood to have figured in the meeting.
Revealing his mind ahead of his meeting with Zardari, Dr Singh had on Tuesday said that Pakistan must address the rising issue of cross-border terrorism.
He said India and Pakistan faced 'enormous challenges' and 'we have to convert these challenges into opportunities and see how peace can be brought and how we can work together'.
"We welcome the advent of democracy in Pakistan. We are looking forward to working with them and how we can work together," the Prime Minister told journalists accompanying him on the US visit.
Official sources accompanying the Prime Minister said India expects Zardari to come out with steps to end rising incidents of cross-border terrorism and ceasefire violations.
It is up to Zardari to find a way out to remove the impediments in normalisation of Indo-Pak relations, they said.
India has been concerned over the spurt in anti-India activities emanating from territories controlled by Pakistan and even said it had put a "strain" on the composite dialogue.
Foreign Secretary Shivshankar Menon last week said Pakistan needs to fulfil its promises made to India to enable forward movement in the ties which have gone through 'difficult times' recently.
He underlined that an atmosphere free of violence and terror was necessary for the dialogue process between the two countries to move ahead.