For now, both sides are. The danger is that in India today, as elsewhere, the hard-liners rule. Taking a cue from George W. Bush’s uncompromising war on terror, New Delhi is demanding that the Pakistani president, Gen. Pervez Musharraf, cease once and for all his nation’s support for “cross-border terror” groups that have helped Pakistan wage a fight over the disputed province of Kashmir against its much larger neighbor. After a deadly Dec. 13 attack on the Indian Parliament, New Delhi threatened to invade Pakistan to root out the militants unless Musharraf quashed them himself. That has led to a tense military standoff between the two nuclear powers in the past two weeks, driving thousands of people from their homes. India has severed rail and air links to Pakistan and massed tens of thousands of troops on the 1,800-mile border–the heaviest military buildup since the 1971 Indo-Pakistani war. Pakistan, which denied any involvement in the attack, moved thousands of its soldiers eyeball to eyeball with its Indian enemy and announced that “it was prepared for war.”

The confrontation has highlighted both the perils–and the promise–of the new global crusade against terror. Since the September 11 terrorist attacks and the U.S. military campaign against Al Qaeda and the Taliban, U.S. allies such as India and Israel are seizing the opportunity to step up their own wars against Islamic militancy. Last month Israeli Prime Minister Ariel Sharon marshaled international pressure along with military action to force Palestinian leader Yasir Arafat to crack down on the radical Hamas and Islamic Jihad movements. Now Indian Prime Minister Atal Behari Vajpayee hopes a similar mix of threat and diplomacy will force his Pakistani counterparts to rein in the Islamic militants who have been assaulting Indian-ruled Kashmir–and other parts of India–with increasing frequency. “This is just like the Israelis upping the ante,” says Shireen Mazari, director general of the Institute for Strategic Studies in Islamabad, “The [Indians] want to change the parameters of the Kashmir issue.”

But the strategy could backfire–disastrously. And U.S. officials find themselves reluctantly cast as mediators–or at least conveyers of messages–between the two governments. The Bush administration fears India will overplay its hand by continuing to make public demands that it knows will be rejected. “We have to hope the Indians don’t respond in a ham-handed manner. They can be ham-handed,” says a senior U.S. official. India has said that it has solid evidence linking the bombers to their Pakistani backers but has refused to share any data with the United States–or, apparently, with Pakistan. Bush offered to help, and to send FBI agents to assist India’s investigation. “They turned down the president’s offer,” says the U.S. official. India’s ultimatum could destabilize or even bring down Musharraf, who faces still formidable opposition from radical Islamists. Or the war of words could escalate into an armed conflict between two bitter enemies whose arsenals are stocked with dozens of nukes. “Any mistake can ignite a fuse and start a war,” says one military analyst in New Delhi.

Bush administration officials are also worried for more selfish reasons. They are concerned that India’s brinkmanship could force Pakistan to ship tens of thousands of troops away from the Afghanistan frontier. That would make it easier for fleeing members of Al Qaeda to vanish into the rugged mountains of Pakistan–and possibly into Kashmir (so far Pakistan has left those troops in place).

Last week the threat of war seemed to recede a bit. In the first indication that India’s pressure tactics may be working, Musharraf rounded up hundreds of members of Islamic militant groups active in Kashmir and agreed to withdraw support from two “nonindigenous” groups, Lashkar-e-Taiba and Jaish-e-Muhammad. And at a meeting of South Asian nations in Nepal on Saturday, the Pakistani leader shook hands with a stiff but receptive Vajpayee, pledging his “genuine and sincere friendship.” Reportedly, Musharraf agreed as well to dismantle the units of Pakistan’s military intelligence that provide support for Pakistan-based rebels. But when Vajpayee demanded that Pakistan hand over 20 alleged terrorists, Musharraf refused, insisting that they would be prosecuted in Pakistani courts. At the same time, Islamic guerrillas showed no signs of easing their deadly secessionist campaign. Rebels killed an Indian policeman in a grenade attack in the heart of Srinagar, the Kashmiri capital; India charged that Lashkar-e-Taiba threatened, in an e-mail to the country’s interior minister, to blow up the Taj Mahal. A spokesman for the rebel group called the report “a lie.”

India is gambling with an existential issue that goes back to the modern roots of both nations. After the 1947 partition of India and Pakistan, the maharajah of Kashmir, a Hindu, waffled on whether his predominantly Muslim state should join India or Pakistan. Pakistan dispatched troops to occupy Kashmir–triggering an Indian invasion and a U.N.-brokered ceasefire that established a so-called Line of Control dividing Pakistani rule from Indian rule. Each side has refused to relinquish its claim to the territory. In 1989 secular Kashmiri groups launched a violent independence struggle. Pakistan later backed them, hoping to exploit the movement to achieve its own goal of controlling Kashmir. Indeed, the anti-India “jihad” for Kashmir has been the greatest unifying force in Pakistani politics in recent years.

So Musharraf is risking his reputation, possibly even his life, in cracking down. But the Pakistani president is playing for bigger stakes now. He wants to abandon the semi-isolation his nation has endured since the cold war, turning it into an economic basket case. “He knows that if Pakistan is a home to all sorts of extremist groups, then it’s going to remain without a future,” said one Western diplomat in Islamabad. A Bush official adds that “if ever he is going to move, the time is now.”

Musharraf has told U.S. officials he will make a major speech shortly in which he will discuss why extremists are dangerous to Pakistan, even while pledging Pakistan will not abandon Kashmir. “What we have to hope,” says one worried U.S. official, “is that the Indians don’t raise the bar.”