NEW DELHI, Feb 25: Indian President A.P.J. Abdul Kalam said on Friday that the United Progressive Alliance government was locked in a serious dialogue with Pakistan but reiterated a standard caveat that Islamabad should desist from supporting cross-border terrorism in Kashmir.

Inaugurating the parliament's budget session, President Kalam said India valued its ties with the United States, Russia and China alike. But the immediate neighbourhood was not to be excluded from this foreign policy pursuit.

"My government has accorded primary attention to relations with our neighbours and strengthening Saarc. It is my government's earnest desire to work with all our neighbours to create a neighbourhood of shared prosperity and peace," President Kalam told a joint session of the parliament's two houses.

"We will reaffirm the importance we attach to realizing the potential inherent in Saarc at its forthcoming Summit meeting," he said, indicating for the first time that India was considering a date to revive the summit it had stalled.

"Our relations with Pakistan are of utmost importance in our endeavour to create a neighbourhood of peace, stability and prosperity," President Kalam said. "We are engaged in a serious dialogue with Pakistan and have taken several initiatives in furtherance of that."

He said in proposing a range of steps, including confidence-building measures that may be taken in the near term, leading up to longer term economic cooperation, India was responding to the felt desire of the region's peoples. "However, the process of normalization is critically dependent on Pakistan fulfilling its assurance that it would end its support to terrorist activities," he cautioned.

"Cross-border terrorism" was a potential threat both in India's west and east, "even though there has been a decline in the number of terrorist attacks in Jammu and Kashmir in recent months."

President Kalam said: "The infrastructure of terrorism has not been dismantled across the border." He recalled that an agreement was reached to start a bus service between Srinagar and Muzaffarabad. It was also agreed in principle to start bus services between Lahore and Amritsar, including to religious places such as Nankana Sahib.

Pakistan also agreed to work towards early restoration of the Khokrapar-Munabao rail link. These measures would enhance people to people contacts, which have also provided palpable support to the present process.

"Our relationship with Nepal will continue to receive high priority and it remains our view that the problems that Nepal faces today can only be addressed by a constitutional Monarchy and multi-party democracy working together harmoniously on the basis of a national consensus," the president said.

"India has expressed grave concern following the dissolution of the multi-party government, declaration of emergency and arrest of political leaders by His Majesty, the King of Nepal, on February 1, 2005." India greatly values its relations with its major economic partners.