***Pakistan arrests Lashkar leader:India terms 'a step forward', provides a list of 20 others***

Indian Foreign Minister Jaswant Singh did not rule out yesterday a meeting with his Pakistani counterpart this week at a regional summit in Kathmandu.

"I will see how the programme develops in Kathmandu," Singh told reporters when asked about a potential meeting with Pakistani Foreign Minister Abdul Sattar.

India had earlier ruled out a

meeting between Prime Minister Atal Behari Vajpayee and Pakistani President Pervez Musharraf, saying Islamabad must first take stronger action against Islamic militants implicated in the deadly December 13 attack on the parliament in New Delhi.

Leaders of the South Asian

Association for Regional Cooperation (SAARC), which also includes Bangladesh, Bhutan, Nepal, Sri Lanka and the Maldives, are due to meet in Kathmandu from January 4 to 6.

Pakistan said yesterday it would welcome talks with India to resolve their dangerous dispute but it was

itup to New Delhi to respond.

"The ball is in India's court," said foreign ministry spokesman Aziz Ahmed Khan. "We have always been ready for talks and it is for them to respond."

Khan said he welcomed Vajpayee's comments on Sunday that India expect the stand off to be resolved by international diplomacy.

"We certainly would welcome the message as far as resolution is concerned through diplomatic means ... We will certainly respond to that. We will engage with India through diplomatic means as we have been asking for in the past," he told a news conference.

However, Khan warned that if war "is thrust on Pakistan" the armed forces and the people would defend themselves.

He confirmed the arrest in Pakistan of Hafiz Mohammed Saeed, head of the Lashkar-e-Taiba.

Lashkar is one of the two Kashmiri militant groups blamed by India for the December 13 attack on its parliament that sparked the current crisis.

In comments indicating a possible breakthrough in their military standoff, Indian Foreign Minister Jaswant Singh said the arrest was "a step forward in the right direction."

Khan said he had not seen a report of Singh's remarks "but I can only welcome that comment."

He also played down clashes along the Line of Control, the de facto border between the two states in the disputed region of Kashmir.

India also gave Pakistan a list of 20 other suspected terrorists it wants arrested and handed over to India, according to AP.

Cross-border shelling between the two South Asian nuclear rivals resumed, meanwhile, leaving two Indian soldiers dead. Nine militants and one soldier were also killed in separate incidents near Srinagar, the summer capital of the disputed Kashmir region.

Hafiz Saeed, until last week the leader of Lashkar-e-Taiba, was arrested Sunday in Islamabad, Interior Ministry officials in New Delhi said yesterday. He was charged with making inflammatory speeches and inciting violence, the Associated Press of Pakistan reported.

"The government has received information about action taken by Pakistan against the Lashkar-e-Taiba and Jaish-e-Mohammed, including the arrest of some of its leaders and raids on some of their premises," Jaswant Singh said after a meeting of the Cabinet Committee on Security. "If the information is confirmed, it's a step forward in the right direction."

He added, however, that Pakistan had far to go until New Delhi would be satisfied that Islamabad was committed to curbing the Islamic militants who launch terrorist attacks in India's disputed Himalayan state of Jammu-Kashmir and elsewhere.

"We want Pakistan to target terrorists who have been targeting India, Jammu and Kashmir," said Singh. "We want Pakistan to pursue it vigorously until cross-border terrorism is eliminated."

Later yesterday, India handed over to officials at the Pakistan High Commission a list of 20 suspected terrorists in Pakistan.

"A list of 20 criminals and terrorists who are fugitives of law and are in Pakistan was handed over to the Pakistani side in New Delhi," said Nirupama Rao, the foreign ministry spokeswoman.

The names on the list include Dawood Ibrahim, chief suspect in the 1993 blast of the World Trade Center in Bombay; Masood Azhar, a terrorist suspect released from an Indian prison in exchange for the release of hostages aboard an Indian Airlines aircraft hijacked on Christmas Day 1999; and those allegedly involved in terrorism in Punjab and Jammu-Kashmir states.

No deadline was given for the handing over of the suspects, but India expected action "as soon as

possible," Rao said.

Meanwhile, the foreign ministers of India and Pakistan have told their Chinese counterpart they do not want their tense standoff to trigger a war on the subcontinent.

China's Foreign Minister Tang Jiaxuan also called on the nuclear rivals to exercise the utmost restraint and work to peacefully resolve their tense standoff, Reuters quoting Xinhua said.

In a telephone conversation with Tang, Pakistan's Foreign Minister Abdul Sattar was quoted as saying Islamabad would continue to strive for peace.

"Pakistan hopes that peace will be maintained in South Asia and opposes war in any form," Xinhua quoted Sattar as saying.

Indian Foreign Minister Jaswant Singh told Tang in a separate telephone conversation that peace and tranquillity were important for all countries in South Asia, including India and Pakistan.

"War is not the way to solve problems," Xinhua quoted Singh as saying.

It quoted Singh as saying he hoped "all parties would work to reduce their hostility, promote dialogue and co-exist in harmony."