A joint statement from Pakistan's Foreign Secretary, Riaz Mohammed Khan, and his Indian counterpart, Shiv Shankar Menon, said the new panel would "consider counter-terrorism measures, including the regular and timely sharing of information".

The two sides proposed such a panel in Cuba in September in talks between Indian Prime Minister Manmohan Singh and Pakistan President Pervez Musharraf in the wake of July train bombings in Mumbai that killed 186 people.

India alleged Pakistan's spy agency had a role in the Mumbai attacks, a claim denied by Islamabad.

Khan said this was "finger pointing" and counter productive and the new panel would be a better forum to discuss such issues.

"We thought this was simply levelling allegations and not cooperation," he told a news conference.

But Menon said it was now up to Pakistan to prove it could act against Islamic militants.

"We want them to stop activities of banned groups like Laskhar-e-Taiba," he said. "First we will see how they act on the information we have already given to them."

The two sides, who conducted tit-for-tat nuclear tests in 1998, "expressed satisfaction over the implementation of the agreement on pre-notification of flight testing of ballistic missiles".

They also agreed on the "early signing" of an agreement to reduce the risk of "accidents relating to nuclear weapons", without giving a specific time frame. The two are to meet next in Islamabad in February.

The peace process, which began in January 2004, is aimed at ending bitter disputes between the countries since the subcontinent was partitioned in 1947 at the end of British colonial rule.

Tensions have been reduced as a result of the process, including the start of bus links across divided Kashmir and work on settling a boundary dispute along a creek on the western Indian border in Gujarat.

But Khan and Menon acknowledged there were no breakthroughs on troop levels on the Siachen glacier or in disputed Kashmir.

Islamabad wants India to reduce troop levels in Kashmir and on the glacier but New Delhi insists the process can start only after the authentication of Pakistani posts on the icy wasteland, where cold claims more lives than actual combat.

"We did have a discussion on Siachen," Menon said. "We both described what bothers us. There is still a gap between our positions. It is something that we need to talk through. That is why we are still talking through this issue."

The two countries have fought two of their three wars over Kashmir since independence, and India accuses Pakistan of militarily backing Islamic militants waging an insurgency that has claimed at least 44,000 lives since 1989.

Pakistan denies it arms or trains the militants. On Tuesday, Khan called for troop cuts in the region to reduce tension. India said that was conditional on a halt to terrorist attacks.

"There can be further troop withdrawals in Kashmir," Menon said.

"But violence has to go down. The threat to people trying to live peaceful lives has to go down."

India did hand over what it claims is proof that Pakistan-backed Islamic extremists carried out bombings in March in the holiest Hindu city of Varanasi as well as attacks on shoppers in the capital last October.

The New Delhi attacks left 66 festival shoppers dead while the triple blasts in Varanasi killed 23 worshippers and injured 68 others.

Khan confirmed that India handed over "some material" related to the strikes. But he said "there is nothing about the Mumbai blasts but I just flipped through the pages".

India had earlier said it was prepared to hand over evidence that Pakistan had a hand in the blasts but the country's national security adviser had said the evidence was "not clinching".

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