Britain's Prime Minister Tony Blair has told Pakistan and India to hold talks to defuse current border tensions and to settle bilateral disputes.

After talks with President General Pervez Musharraf, the British leader told a news conference that dialogue is the only way to de-escalate military tensions between India and Pakistan.

Mr. Blair said he hopes this could happen in order to ensure that the two nations step back from the brink of war. "There should be a proper, meaningful process for peaceful dialogue to resolve disputes such as that of Kashmir," he said. "If the tensions were to escalate, and to escalate beyond control, it would be a very serious day for the region and the world."

Tensions between India and Pakistan have mounted after a terrorist attack on the Indian parliament last month. New Delhi blames two Pakistan-based militant groups fighting Indian rule in Kashmir. The parliament attack has led to the largest bilateral military build up in 15 years, raising fears of a fourth war between the countries.

India says Pakistan must stop what it calls "cross-border terrorism" before any discussions can take place to settle bilateral disputes. It has given Islamabad a list of 20 people allegedly responsible for terrorist attacks on Indian soil.

Addressing the same news conference, Pakistan President Musharraf said his country rejects all forms of terrorism. He said his government is planing more moves to eliminate extremism from the Pakistani society. "We are taking steps within Pakistan to bring some degree of normalcy, balance, introducing a tolerant society [and] checking any form of militancy within our society," he said. "We have been a victim of sectarian extremism, sectarian terrorism. All that is being addressed and its final decision will be given when I come to address the nation in a few days time."

Pakistan has rounded up scores of Islamic militants in the past few days, including the leaders of two groups that India blames for last month's attack on its parliament, in which 14 people were killed.

Prime Minister Tony Blair arrived in Islamabad on the third leg of a South Asian tour, aimed at defusing tensions between India and Pakistan. Britain and the United States have expressed concern that the stand off could threaten regional stability and their war against terrorism in Afghanistan. But despite Mr. Blair's peacemaking mission, India has ruled out immediate talks with Pakistan.