After the human cost of Mumbai, the political cost has been levied: peace talks between nuclear-armed neighbours India and Pakistan have been suspended.

India made the announcement as tensions escalated following the Mumbai terror attack last month, which was blamed on Pak-based terrorist group Lashkar e Toiba.

It was inevitable that India would pull out of the so-called “composite dialogue” which was an attempt at confidence building between the two countries to pave the way towards resolving the deadlocked issue of Kashmir, that lies at the heart of their enmity.

The talks first got underway after the two countries came to the brink of war in 2002 after an Islamist terrorist attack on India’s Parliament in December 2001 was blamed on Pakistan.

Now that India has pulled out of these talks, it is signalling to Pakistan the time has come to make a choice: peace or the militants.
The way forward for the region and Pakistan in particular was the debate at London’s Frontline Club earlier this week, when I joined a panel including the Pakistani journalist Aamir Ghauri, formerly head of European news at Pakistan’s Geo TV, as well as BBC South Asia veteran David Loyn and Anshel Pfeffer, the London correspondent for Israeli newspaper Ha’aretz, who was an eye-witness to the attacks in Mumbai.

The talk centred on concerns that the new Pakistani President Asif Ali Zardari cannot control the rise of militancy in the country. But is it a question of Pakistan being unwilling or unable to tackle one of the root causes of international terrorism?

It was felt that while Zardari may be honest in his efforts to clamp down on terror, he may be facing opposition from renegrade elements within the Pakistani establishment– either people inside intelligence agencies and the army or those who have left government agencies to pursue an agenda of training jihadis.

International pressure is mounting on Zardari to act. Pakistan remains the biggest recipient of US aid, it has also been the beneficiary of an IMF bailout recently which has kept the country afloat. Yet there is a demand now for a quid pro quo, for real results.

The stakes are higher now then back in 2002 when India and Pakistan were locked in a stand-off. Pakistan is key to the war on terror in Afghanistan, militancy is on the rise within Pakistan and the country is in economic turmoil. The West fears heavy-handed action now could tip Pakistan over the edge and into the abyss of all-out chaos.

But India knows that its electorate will not tolerate another Mumbai without demanding some sort of retaliation against Pakistan. Added pressure is given by the knowledge that an Indian national election is due by spring 2009. The opposition Hindu nationalist BJP, hardliners on security, is sure to make the terror threat a key electoral issue and seek to seize power from Congress on the back of it.

Everyone at the Frontline Club was agreed that with such a backdrop, the world cannot afford for relations between India and Pakistan to worsen or take the risk of Pakistan diverting troops from its Afghan border to the Indian one. That plays into al Qaeda’s hands.

An Indo-Pak war looks unlikely. Given the stakes, the west will not allow such an escalation. But the region is set to remain a source of major geopolitical instability and it will dominate the foreign policy agenda for the new Obama administration.