Addressing the Partnership Summit of Confederation of Indian Industry in Hyderabad, he said, "India's position of no dialogue until terrorism emanating from Pakistani territory ends does not provide the basis for a sound, long-term policy to deal with its neighbour."

Haass was addressing delegates from India and 23 countries on 'United States and India -- A Transformed Relationship'.

India should recognise that important developments unfolding in Pakistan could contribute to a more stable, secure region, he said.

"I hope that New Delhi responds to these changes by taking small steps, beyond the welcome reduction in military developments on the international border. India should acknowledge encouraging events where they exist, including Pakistan's assistance in the war against Al-Qaeda and Taliban, President Musharraf's vision of a reformed Pakistan, and the emergence of civilian leaders."

Pakistanis should realise that infiltration is killing the hopes of a settlement to the Kashmir issue, he added.

"In the absence of the most basic contacts and the most minimal line of communication, tension between India and Pakistan constantly risks sparking a border conflict with potentially cataclysmic consequences, for both countries, for the region and, if I might say, for the US."

Referring to the possibility of a war with Iraq, Haass said, "If force proves necessary, we hope that the US can turn to India for assistance in meeting not only immediate needs, but also in addressing the humanitarian, political, and economic challenges that follow."

Welcoming India's role in the adoption of the International Atomic Energy Agency's resolution, he said, "We appreciate that India is part of the international consensus demanding that North Korea do away with its new Uranium enrichment facility and meet its international obligations."