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India welcomed on Friday Pakistan's surprise offer to set aside its decades-old demand for a U.N.-mandated referendum on the future of the disputed Kashmir region.

Indian Foreign Minister Yashwant Sinha, in New Delhi's first reaction to Islamabad's offer, said his government would always be ready to accept any change in the Pakistani position that a plebiscite in Kashmir was the only way out of the thorny dispute that has plagued relations between the nuclear-armed neighbors.

"We have always suggested flexibility," Sinha told reporters on Friday after a cabinet meeting on security.

In an interview with Reuters on Wednesday, Pakistan President Pervez Musharraf offered to set aside Islamabad's 50-year-old demand to implement U.N. resolutions calling for both sides to withdraw troops and for Kashmiris to decide in a vote on whether to be part of India or Pakistan.

Sinha said: "It is Pakistan which has been rigid, it is Pakistan which talks about the centrality of the issue. So if there is any change or modification in the Pakistani position, that's something which India will always be ready to welcome."

On both sides of the divided Himalayan region, the trigger for two of three wars between the rival neighbors, the offer spurred quiet hopes for peace as well as charges of betrayal.

In the heart of Kashmir, in the ancient Indian-controlled city of Srinagar, people had earlier urged India to respond positively to Musharraf's apparent concession.

"India has to reciprocate...only then a solution is possible. Only then our sufferings, miseries and hardships will end," said Mohammad Maqbool, houseboat owner on Srinagar's famous mountain-fringed Dal Lake, on Friday.

Tens of thousands of people have been killed in a 14-year insurgency on the Indian side of Kashmir, its only Muslim-majority state, while tourists have been driven away and the economy devastated.

Dismissing talk of any U-turn in policy, a close aide to Musharraf said in Islamabad the offer was consistent with the president's previous policy statements.

"It is his consistent statement that for resolution of an issue, we have to move away from our stated positions."

The aide explained that moving away from Pakistan's "stated position" clearly meant dropping the demand for a referendum, so Musharraf was merely spelling out an offer he had made before.

Information Minister Sheikh Rashid Ahmed said Pakistan still supported the idea of a plebiscite but would discuss alternative proposals at any talks with India on Kashmir.

Foreign Minister Khursheed Mehmood Kasuri told the official APP news agency that Pakistan's demands to work on the basis of U.N. resolutions had not been dropped.

"It does not mean that Pakistan has unilaterally dropped its demand based on U.N. resolutions," he said.

India blames the violence in Kashmir on militants based in Pakistan. Pakistan denies backing the rebels except for moral support, and accuses India in turn of human rights violations.

RIGHTS BETRAYED?

But many Kashmiris on the Pakistani side of the region voiced anger at what they saw as a betrayal by Musharraf of their right, under the referendum, to decide their own fate.

Raheel Ahmad, a 32-year-old grocery shop owner said the sacrifices made by Kashmiris should not "go to waste."

"Who is Pervez Musharraf to say that he is ready to abandon U.N. resolutions on Kashmir's plebiscite? This is our issue."

Jamiat-ul-Mujahideen -- a hardline pro-Pakistan group and one of about a dozen Muslim separatist groups fighting for Kashmir's independence or merger with Pakistan -- said Musharraf had no right to make his offer.

But Syed Salahuddin, leader of the largest Kashmiri militant group, Hizbul Mujahideen, said: "Pakistan's offer...is major progress provided India shows flexibility and gives up its intransigence."

On Friday, the neighbors agreed to resume train services between Lahore, Pakistan to Attari, India from January 15 in a further move to normalize relations. They agreed to restore air links a few weeks ago.

Travel and diplomatic ties were cut after an attack on the Indian parliament blamed on Pakistan-based guerrillas in December 2001. Pakistan denied involvement.

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