"There has been a marked decrease in intensity compared to last week along the international borders of Samba, Kathua and R.S. Pora," a police spokesman said.

"Although both sides exchanged mortar fire during the night it was on a low scale. No loss of life or injuries have been reported," he said.

In Poonch sector, one of the main flashpoints along the Line of Control, the de facto border between India and Pakistan in Kashmir, shelling continued during the night but damage was limited to a government guest house and a police camp, the spokesman said.

Indian and Pakistani troops have fought pitched artillery and mortar battles in the western region of Poonch for the past week.

The shelling began in earnest on May 17, following a massacre in southern Kashmir that New Delhi blames on Pakistan-based militants.

An Indian government source said on Sunday New Delhi would announce in the next few days a package of measures designed to help reduce tensions with Pakistan.

These would be in response to a commitment by Islamabad to US mediators in the crisis that it would rein in the Islamic militants responsible for murderous attacks on Indian targets, including its parliament in December.

Police said 35 Indians have so far been killed in the artillery duels across the LoC and the international border.

Officials said about 130,000 villagers living near the LoC have fled to safer neighbouring districts to escape the daily artillery battles.

More than a million soldiers have been posted on the border since the attack on parliament in New Delhi.

Kashmir, claimed by both India and Pakistan, has been the cause of two of the three wars between the nuclear-armed rivals.

Tensions Ease As India Reduces Tone
The latest developments follow moves by India on Sunday to ease border tensions, a development that was welcomed by Pakistan.

"Pakistan welcomes reports that India was considering military and diplomatic gestures to de-escalate tension between the two countries over the Kashmir issue," Information Minister Nisar Memon said.

"It seems the situation is heading towards improvement," state television quoted him as saying.

Memon also expressed hopes that the two countries would be able to begin a dialogue on "all important issues including Kashmir," the cause of two wars between the nuclear-armed rivals since their independence in 1947.

A senior government source told AFP in New Delhi Sunday that India would soon announce a number of steps to defuse the crisis that has brought India and Pakistan to the brink of war.

Among the options available to New Delhi, the source said, was increasing India's diplomatic representation in Islamabad, lifting a ban on Pakistani aircraft from using Indian airspace and restoring bus and train links.

The comments were a positive sign, coming after Pakistani fighter jets shot down an unmanned Indian spy plane flying a reconnaissance mission over the eastern city of Lahore, in an incident that threatened to inflame the tensions.

Pakistan Saturday summoned a top Indian diplomat to hear a "strong protest" over the air space incursion, but Foreign Minister Abdul Sattar was relatively conciliatory, merely urging India to show restraint.

"In a situation like this a responsible state must exercise utmost care to ensure that no provocations are made which might lead to escalation," Sattar said.

However, just as the threat of war appeared to be receding, a new irritant emerged as an Indian defence ministry source said Sunday that two heavily-armed "Arab-looking" fighters, suspected to be members of the al-Qaeda terror network, were killed in a clash with Indian soldiers in Kashmir.

If confirmed, the incident would mark the first time al-Qaeda members have been encountered in Indian Kashmir, and back India's claims that cross-border terrorism persists in the state.

An alliance of mujahedin groups fighting Indian rule in Kashmir denied any Arab al-Qaeda fighters were taking part in their "freedom struggle".

"The Indian claim is totally baseless and a pack of lies. It is yet another vain attempt to mislead the international community," said Syed Salahuddin, chairman of the Muttahida (United) Jihad Council.

"No Arab or al-Qaeda member is fighting along with any of the mujahedin groups to end the illegal Indian rule in occupied Kashmir," he told AFP.

Salahuddin said that so far there had not been a single incidence of any Arab fighter or al-Qaeda member taking part in an armed action against Indian rule in Kashmir.

Last week, Indian Defence Minister George Fernandes claimed in a newspaper interview that the military had information that al-Qaeda fighters "are in Pakistan and are now poised to enter Jammu and Kashmir."

"Pakistan does not want to keep them there to create problems for itself," Fernandes said. "This is what is worrying us more than anything else. They are all in camps in Pakistan-occupied Kashmir."

But authorities in Pakistani Kashmir Sunday dismissed Fernandes' claims as "rubbish."

"Arab fighters have never been to Azad (Free) Kashmir. So there does not arise any question of their taking shelter here," a senior government official told AFP.

"Azad Kashmir is a small area, with limited entry points. Any stranger, particularly Arabs, cannot come here and stay for long without being spotted," he said.

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