"The situation on our eastern borders has once again become very fragile," Prime Minister Yousuf Raza Gilani said in an address to a seminar in Islamabad on 'Democracy in Pakistan'.
He accused India of indulging in a "blame game, media vilification campaign and war mongering" against Islamabad after the Mumbai attacks, which have been blamed on the Pakistan-based Lashkar e Tayiba.
"The world must not let tensions between India and Pakistan escalate," he said, adding that India's decision to put on hold the composite dialogue process was "regrettable".
Gilani said, "It was and still remains our earnest hope that an improved state of relations between Pakistan and India could provide a precious opportunity for our two countries to work for resolution of the difficult issues between us, in particular the unresolved Kashmir dispute."
He said this "outstanding issue must be resolved keeping in view the aspirations of the Kashmiri people". The world community could help in this process by "encouraging both the parties to stay the course and to demonstrate courage, determination and sincerity".
Gilani also said Pakistan faced regional challenges "mainly on two counts: the conflict in Afghanistan and the unresolved Kashmir dispute". The resolution of these issues is "imperative for peace and economic prosperity of the region and its people", he added.
Gilani said India had "refused to accept" Pakistan's proposals for conducting a joint investigation into the Mumbai incident and for setting up a joint commission under the national security advisers of both countries to address the emerging situation.
Pakistan is sincere about enhancing peace and security in South Asia and the country's democratic government had "done a lot" to normalise relations with India, he said.
Gilani alleged that India had indulged in a blame-game and war-mongering in the wake of the Mumbai attacks despite "not having any concrete evidence" against Pakistan, and this had brought the two countries to "square one in terms of confidence-building measures".
The Pakistan premier said Pakistan was among the first countries to condemn the terror attacks in Mumbai and "had taken many steps, including closing down of offices of the Jamaat ud Dawa, arrest of its leaders and freezing of their assets".
Pakistan cracked down on the JuD, the front organisation of the LeT, almost two weeks after the Mumbai attacks following the UN Security Council's declaring the group as a terrorist outfit.
In an obvious reference to the previous military regime of ex-President Pervez Musharraf, Gilani said extremism and terrorism had "taken roots in the country over the past eight years" but their "spread had remained largely unchecked".
At the same time, "Pakistan's relations with neighbouring countries, particularly with Afghanistan, had deteriorated to the lowest ebb", he said.