"We hope the agreement reached in Islamabad would be fully implemented and a new chapter is opened," Vajpayee told a rally in the southern city of Hyderabad.

India and Pakistan, in a surprise announcement Tuesday on the sidelines of a regional summit in Islamabad, said they were resuming dialogue stalled since a failed summit in July 2001 between Vajpayee and Pakistani President Pervez Musharraf.

India said the dialogue would include discussion of divided Kashmir, while Pakistan said it would not allow its territory to be used by "terrorists".

"Now no one will be allowed to infiltrate. We have proper arrangements on the border and we also have an agreement," Vajpayee said.

New Delhi charges that Pakistan has armed rebels and pushed them into the Indian zone of Kashmir. Pakistan says it provides only moral and diplomatic support to an indigenous uprising.

"I am confident that this new year has come with the message of peace. We want peace on the borders and we also want peace within the country," Vajpayee said.

"Whatever change is to happen should happen through peace and democracy, not through guns. I want to tell the youth to prepare for a glorious future."

The prime minister said he has spent his tenure trying to make peace with Pakistan -- including a bus trip to Lahore in 1999 and the summit with Musharraf -- but that the attempts all failed.

"But we didn't lose hope. After all, we are neighbours. We have to live together. This is why we have been taking steps. And in Srinagar last year, I again offered a hand of friendship. I am happy that even though late, the hand has been accepted," Vajpayee said.

WAR.WIRE