Iranian President Mohammad Khatami has said he is willing to help reduce tension between India and Pakistan.

He told journalists in Islamabad that a $3.5bn pipeline carrying Iranian gas through Pakistan to India could bring prosperity to all three countries - but not without peace and security in the region.

We want to do everything to remove tensions and promote peace on both sides President Khatami

President Khatami was speaking at a joint news conference in the Pakistani capital on the second day of a landmark state visit.

India has refused to hold talks with Pakistan on their dispute over Kashmir until Islamabad ends militant incursions from its territory.

Pakistan, which says it gives only moral support to "freedom fighters", has promised to do this.

Watershed

President Khatami said he had personally intervened when the nuclear-capable neighbours were on the brink of war earlier this year, and he was determined to continue his efforts.

Gas pipeline: Focusing minds

"We want to do everything to remove tensions and promote peace on both sides," he said.

He told the news conference he was fully satisfied with Pakistan's assurance that there would be no disruption of the gas supply to India.

Pakistani Prime Minister Zafarullah Jamali told the same news conference: "We agreed that the Kashmir dispute should be resolved in keeping with the wishes of the people of Kashmir."

Pakistan wants Kashmiris on both sides of the disputed border to be allowed to hold a plebiscite to decide their future.

President Khatami avoided talking about past differences between Iran and Pakistan on the Taleban, and said the two countries were now committed to reconstruction efforts in neighbouring Afghanistan.

Mr Jamali said the two sides had also discussed the developing situation in Iraq, but it is not clear if there was a consensus, because of their divergent views on the role of the United States and its growing influence in the region.

US role

Pakistan is a close ally of the US and has even provided facilities for American forces to carry out military strikes in Afghanistan.

Khatami: Angry at 'axis of evil' label

Iran, on the other hand, is one of the states regarded by President Bush as the "axis of evil".

President Khatami's three-day visit is the first by an Iranian leader since the fall of the Taleban, and is viewed as a watershed in relations between Iran and Pakistan.

Officially, the two countries have always described their relations as extremely cordial and brotherly.

But beneath the surface tension and mistrust remained in the past decade, mainly because of their divergent stand over the Taleban,

Since Pakistan dumped the Taleban last year and joined the US-led military action to install a broad-based administration in Kabul, relations between Tehran and Islamabad have somewhat improved.

President Khatami met his Pakistani counterpart, Pervez Musharraf, on Monday.

A number of trade deals are expected to be signed before the Iranian president leaves.