Pakistani Prime Minister Zafarullah Jamali will open the 12th summit of the South Asian Association for Regional Cooperation (SAARC), the 18-year-old forum's first since January 2002 when India and Pakistan were on the brink of their fourth war.

Last year's summit was cancelled when Indian Prime Minister Atal Behari Vajpayee refused to travel to Pakistan because of ongoing tensions.

This year he has made an historic journey to Islamabad to take part in the summit, eight months after kick-starting fresh peace moves with a "hand of friendship" offer to Pakistan.

The trip, his first since 1999, marks the first visit by an Indian leader to Pakistan since their near-war confrontation less than two years ago.

All eyes are on whether Vajpayee will extend his pronounced "final" bid for peace as far as a bilateral meeting with President Pervez Musharraf or Jamali on the three-day summit's sidelines.

At Sunday's opening, Prime Minister Khaleda Zia of Bangladesh, Bhutan Prime Minister Lyonpo Jigme Yaeser Thinley, India's Vajpayee, Maldives President Maumoon Abdul Gayoom, Nepal Prime Minister Surya Bahadur Thapa, Pakistan's Jamali and Sri Lankan President Chandrika Kumaratunga will deliver addresses.

On Monday they will retire to a private "retreat" at the Pakistani premier's official residence to discuss and ratify agreements.

Top of the agenda are the South Asia Free Trade Area (SAFTA) Framework Agreement, a strengthened counter-terrorism accord, a regional social charter, a poverty alleviation agreement and establishment of a regional development bank.

SAFTA envisions a free trade regime starting from January 1, 2006, when the seven states begin dropping their tariffs to 0 to 5.0 percent. Deadlines for implementing the tariff regime will differ according to respective states' economic prowess.

"This indeed is a landmark decision," Pakistan Foreign Minister Khurshid Mahmud Kasuri declared as he announced the SAFTA agreement had been finalised at pre-summit talks by foreign ministers.

Vajpayee said in a formal statement Saturday he would "interact" with his Pakistani hosts during his three-day visit, but told Indian state television that there would be no "bilateral" talks with the Pakistanis.

He told Pakistani television he could meet Musharraf and discuss the rivals' contentious territorial dispute over Kashmir, but gave no timeframe.

"We think that we can have talks with Musharraf sahib (mister)," he said in the interview given in New Delhi before travelling to Islamabad.

Newspapers were rife with speculation that talks may take place Tuesday after the closing session and before Vajpayee returns to India.

Pakistan has given way on its Kashmir stance in the lead-up to the summit, initiating an unprecedented ceasefire along its boundaries since November 26 and offering to step back from its life-long demand for a referendum in the disputed territory.

Vajpayee told Pakistani television on the eve of the summit that he was willing to dicuss Kashmir but reiterated it was an integral part of India.

Vajpayee was welcomed on arrival Saturday with a warm handshake by Jamali and the premiers embraced as he stepped on to the tarmac.

Officials have hinted that some level of ice-breaking meetings will take place.

"The expectations are very, very high," Indian Foreign Secretary Shashank, who uses only one name, told reporters Saturday.

Indian Foreign Minister Yashwant Sinha, in his most optimistic forecast yet, said "the winds of change are blowing in the SAARC region."

"After the sixth of January there would be a new phase in our relations not only beteen India and Pakistan but a new spirit in all the countries of SAARC," Sinha said in a Saturday night address to a media seminar.

"Let us leave the baggage of the past suspicion and hatred and look forward to new and bright tomorrow."

Kasuri urged dialogue at foreign secretary level to start as soon as possible.

The summit is scheduled to open at 10:45 am (0545 GMT).

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