Efforts to develop warmer relations between South Asia¿s two nuclear powers, India and Pakistan, will not succeed unless political violence in Kashmir is reduced. One of the key factors sustaining that violence is the dearth of economic opportunities, which ensures a steady supply of disaffected recruits to terrorists and militant groups. This report sketches the turbulent history of Kashmir from its division in 1947 through the revolt of 1989-90 to 2003, and then explores the economic dimensions of the conflict and the opportunities for peacebuilding. The governments of India and Pakistan, together with political leaders in Kashmir, must take the lead in promoting economic dev¿t., but they require the assistance of internat. financial institutions and of the U.S.

While the war on terrorism may have provided the rationale for the latest U.S. engagement with Pakistan, the present relationship between the U.S. and Pakistan is at the crossroads of many other issues, such as Pakistan¿s own reform efforts, America¿s evolving strategic relationship with South Asia, democracy in the Muslim world, and the dual problems of religious extremism and nuclear proliferation. This report examines the history and present state of U.S.-Pakistan relations, addresses the key challenges the two countries face, and concludes with specific policy recommendations for ensuring the relationship meets the needs of both the U.S. and Pakistan.