FROM where I sit writing this, I can see the American state of Maine across Passamaquoddy Bay in St Andrews, New Brunswick. There are pine-covered islands dotting the bay,and occasional boats cruise past where we are staying at Harding's Point.

But even this remote and utterly lovely Canadian resort town of 1,500 people (2,500 in the summer) has not escaped the echoes of the failure of the Agra summit. The media here usually does not cover much more than the local gala or the story about a pet cat being stranded in a tree, but even they gave the odd column to the Indo-Pak talks and their background. And after they collapsed, neighbours commiserated as though I had suffered a personal loss.

And in a sense I suppose I have. While many of my more cynical colleagues had predicted that the summit would not yield any results, I had allowed my optimism - normally kept under a tight leash - to run away with me, and suggested that while there would be no immediate breakthrough over Kashmir, there would be agreements over a range of peripheral issues like trade and travel. In the event, only the hawks on both sides have emerged happy with the outcome. Unfortunately, their triumph is South Asia's collective setback.

However, going through different accounts of the talks on the Internet, I was struck by their uniform sense of disappointment and sorrow over the wasted opportunity. The western media expressed relief that the summit had taken place at all, and expressed the hope that this would be the first in a series of top-level meetings. Indian journalists were more concerned with the details of how and why the talks failed without automatically blaming the Pakistani side. And the fact that the foreign ministers of both nations have chosen to remain upbeat about future prospects indicates that the recent failure in Agra could well translate into a more positive outcome later on.

With the benefit of hindsight, I suppose it is easy to say that given the magnitude of the gulf between India and Pakistan, peaceniks like me were naive in assuming that either side would show much flexibility in the beginning. The hardliners in both camps are too well-entrenched, and their vested interests too deeply embedded in state policy to permit the kind of concessions needed for a breakthrough.

An allied factor on the Pakistani side has been the role of the jihadi organizations. By escalating the fighting in the days leading up to the summit as well as during the talks themselves, the lashkars not only flexed their muscles, but also indicated their complete rejection of the peace process. The problem is that if India and Pakistan do reach a negotiated settlement, these outfits will be the biggest losers as they will not only be deprived of funds and arms, but will be rejected by the Kashmiris themselves.

So, despite their rhetoric, they have a vested interest in continuing the fighting. The unaudited secret funds and public donations currently keeping them afloat are financing a lifestyle among top jihadi leadership that they would be loath to give up if and when the bloody uprising stops in the wake of an Indo-Pak agreement. So they will continue insisting on an all-or-nothing solution while sabotaging any compromise formula.

If it is elements like these that Musharraf has to contend with, Vajpayee is not without his extremist detractors. Already there are calls from within his BJP coalition advising him not to accept the Pakistani invitation to visit Islamabad later this year. The Pakistani take on why there was no agreement on a joint declaration is that elements in the Indian delegation prevented a draft approved by Musharraf and Vajpayee from being signed. Whatever the real reasons underlying the failure of the two sides to agree even upon an anodyne joint declaration, it seems clear that there are deep divisions and fissures on the Kashmir issue at the policy-making level in both countries.

Again in retrospect, it is easy to see why the gulf between the two is wider than ever: Pakistan wants nothing less than to change the status quo through negotiations while India seeks to maintain it at all costs. And the costs are escalating as the recent casualty figures show. Pakistani analysts at GHQ probably calculate that by supporting the jihadi lashkars, they will keep things on the boil without inviting retaliation. This will force India to the negotiating table, apart from keeping the Kashmir issue alive in international forums. But this strategy has given these outfits growing clout within Pakistan, and more and more,the tail is wagging the dog.

The view from New Delhi is more global, given India's regional and international ambitions. Indian analysts recognize that it will not be accepted as a major player until the volatility on its borders subsides. Given the two countries' nuclear capabilities and the region's perennial no-peace, no-war status, significant foreign investment will remain wary. Pakistani planners have a more immediate concern; how to avoid fiscal meltdown, given the economy's poor performance combined with the massive debt servicing bill as well as the unending drain on our resources imposed by defence. If we are to kick-start the economy, settlement of the Kashmir issue is an unavoidable first step.So the good news is that both countries are under different compulsions to normalize relations. These factors need to be kept in the forefront when Mr Vajpayee and General Musharraf next meet in New York at the UN General Assembly session in September. As they have already spent over ten hours in one-on-one talks in Agra, they will have a broad consensus as well as good personal chemistry to build on. In this sense, the recent summit can be seen as a positive first step since, hopefully, the two leaders will not need to go over the ground they have already traversed.

These are difficult times for both countries. They are both having to confront deeply held prejudices and question decades-old policies. In a sense, their maturity and self-confidence is being tested as never before. Against this background, the temporary setback in Agra should not have surprised us. Having thought about the recent events in the subcontinent away from the media hype and the general disappointment, one can come out of one's immediate gloom and be more optimistic about future contacts and talks.

A couple of days ago I got an e-mail from my son Shakir in Karachi, saying that I should have been in Agra these last few days. "What?" I asked him, "And missed the lobster boil at the beach this evening, and the whale-watching expedition tomorrow?" The subcontinent's problems are so intricate that I can easily take a few weeks off and not miss anything.