By Susannah Price BBC Pakistan correspondent

Pakistan's President Pervez Musharraf has warned that the crisis with India will remain potentially explosive while both sides have large numbers of forces massed on their borders.

Speaking in an exclusive BBC interview, General Musharraf said the two countries had come "very close" to war - although the threat had diminished because intentions had changed.

But he said the capability for fighting remained.

Musharraf has called for high-level talks with India

"The situation will remain explosive because if anything happens in Kashmir or inside India, which is a possibility by any independent group or terrorist organisation, the situation could become explosive again," he said.

President Musharraf, who wore a grey suit and tie rather than his military uniform, said the only way to lower tensions was to reduce the military forces.

And he said he believed it would be best to have a dialogue at the highest level, with Indian Prime Minister Atal Behari Vajpayee - and the foreign ministers could meet first to prepare the ground if the Indians wanted.

Stalemate

At present there appears to be a deadlock between India and Pakistan.

The Indian Defence Minister George Fernandes said he believed infiltration across the dividing Line of Control from Pakistan had almost ended.

But dialogue with Pakistan was not possible until infiltration was permanently stopped, he said.

This was a key demand by India and was supported by the United States and other western countries - although Pakistan maintained it only provided moral and diplomatic support to the fighters.

Kashmir is in the limelight and this is the best way of moving forward to a peaceful resolution of the dispute

President Musharraf

General Musharraf said it was not a mistake to back the militants and he did not believe it had damaged Pakistan.

"I think the world knows the reality, the Kashmir cause is understood by the whole world, it was never discussed or considered seriously," he said.

"Kashmir is in the limelight and this is the best way of moving forward to a peaceful resolution of the dispute."

Al-Qaeda presence

Investigations are continuing in Pakistan into the series of attacks aimed at foreigners which include two recent bombs in Karachi.

President Musharraf said it was possible that Osama Bin Laden's al-Qaeda network was involved - but it said it could also be India or any terrorist organisation that opposed Pakistan and the United States.

He said they had arrested more than 300 al-Qaeda suspects from the border areas with Afghanistan and from the cities.

"The possibility of more being there cannot be ruled out and we are taking action, we need information and intelligence support and whenever we get it we move very fast and very effectively."

He said the al-Qaeda members were in small groups spread over Pakistan but he was sure the authorities would keep moving against them.

Will keep 'overwatch'

On the question of October's parliamentary elections, he said he would ensure they would be fair and would invite any observers to come and see what it happening, but was sure the losers would complain.

"We cry when we lose - that will happen everytime," he said. "I know people will talk against it."

Many analysts have questioned whether the elections will restore true democracy.

President Musharraf, who won another five years in office in a controversial referendum earlier this year, has already spoken of continuing with checks and balances.

He said that after the elections the prime minister would be all-powerful and could take decisions on everything.

Pakistan is not a bed of roses

President Musharraf

But he said he would retain the authority to have an "overwatch" and have the power to dismiss the cabinet or assembly, through a National Security Council.

"I am giving up power and not usurping power - that is how I see it and I mean every word of it," he said.

And when asked if he enjoyed running Pakistan - he said he got a lot of satisfaction doing something for his country but it meant he no longer had much free time for socialising and sport.

"Pakistan is not a bed of roses, Pakistan is very difficult to govern. Pakistan I keep saying is the most difficult country in the world to govern."