NEW DELHI, Aug 20: India on Friday accused Pakistan of inciting terrorism in the occupied Kashmir and in several north eastern states bordering Bangladesh besides blaming one of its spy agency for using various means to destabilize the country.

The Indian Home Ministry's annual report for 2003-2004 said that the UN resolution calling for plebiscite in the occupied Kashmir was no longer valid for two reasons: First, Pakistan had failed to fulfil its obligation by withdrawing its troops from Azad Kashmir and second, the Shimla Agreement of 1972 mandated a bilateral resolution of the issue.

While these points have been the known positions of Indian governments since 1990, the new home ministry's observations are believed to signal the way ahead for the United Progressive Alliance government, which came to power on the promise of dialogue and friendship with Islamabad.

The report is also said to hold possible clues to India's stance in the dialogue on Kashmir when the foreign ministers of India and Pakistan meet in New Delhi in the first week of September. It is also likely to be part of the discussions on Kashmir between Indian Prime Minister Manmohan Singh and President Gen Pervez Musharraf in New York.

"Pakistan has consistently used terrorism and covert action as an instrument of state policy against India ... It has also sought to promote disaffection among the Indian people towards the state with a view to destabilising the country," the home ministry report said.

It said the "main focus of ISI strategy includes intensification of proxy war in a wide area from Jammu and Kashmir to North East, further strengthening the strategic alliance between Kashmiri militants and international terrorist groups."

The report mentioned India's dialogue with what it called the moderate faction of Kashmir's All-Parties Hurriyat Conference. Among its main strategies to check infiltration was the use of fencing by India along the Line of Control. But it was not yet working effectively.

"Post-Sept 11, 2001, Pakistan's response to mounting international pressure to end all kinds of cross-border terrorism has been waxing and waning commensurate with its internal and external compulsions. Pakistan has not yet abandoned exporting cross-border terrorism as an instrument of state policy to achieve the so-called unfinished agenda of the partition," the report said.