Musharraf told a news conference relations with India had never been better and he was "reasonably optimistic" about their three-year-old peace process but there was a danger of setbacks.

"I think there is good optimism towards a resolution but we have to tread the ground carefully so that we don't slide back," he said.

The nuclear-armed neighbours have fought three wars since their independence in 1947 and nearly went to war a fourth time in 2002.

Tension has eased since they began peace talks in early 2004 but progress has been slow, including on their core dispute over the divided Himalayan region of Kashmir, where Muslim militants have been fighting Indian rule since 1989.

Musharraf, in an apparent reference to the militants who have for years enjoyed Pakistani support, said some people were opposed to the peace process.

"We cannot take the people who are on confrontationist course, who think that it is only military, it is only militancy, which will solve the problem," he said.

"They can't be on board. So they will remain opposed to whatever we do and they will create all obstacles. We have to be steadfast against what they all do."

Musharraf's remarks came after a top separatist leader from Kashmir, Mirwaiz Umar Farooq, called during a visit to Pakistan last month for the militant groups to support the peace process.

Suspected Muslim militants on Wednesday threw a grenade at Farooq's office in Srinagar. No one was hurt.

Last month, the Indian and Pakistani foreign ministers met in Islamabad reviving momentum in the peace process that had been stalled by deadly bomb blasts in Mumbai in July. The blasts were blamed on militants linked to Pakistan.