HIGHLIGHTS: Islamabad is Ready to Do Whatever Is Consistent With Honour & Dignity to Avoid War with India, Armitage Tells India||Rumsfeld Has Specific Proposals to Present to India and Pakistan, Shortly||Fears of a Nuclear War in South Asia Dormant for Now But Still Ticking|| STORY: Pakistan said its jets shot down an unmanned Indian spy plane as U.S. diplomatic efforts to cool the military stand-off between the nuclear-armed neighbors raised hopes that war could be averted.

In a statement issued on Saturday, the Pakistani armed forces said the Indian reconnaissance drone was shot down at 11 p.m. (noon EDT) on Friday, with wreckage falling close to the town of Raja Jang, south of the Punjab provincial capital Lahore.

India had no immediate comment.

Senior U.S. envoy Richard Armitage had told India on Friday that Pakistan was committed to taking permanent action against Islamic militants, a pledge that could help draw the South Asian countries back from the brink of war.

Indian and Pakistani troops with artillery and mortars continued trading fire across the militarized Line of Control (LOC) that divides disputed Kashmir between the two countries. A million troops are massed along the border.

U.S. Deputy Secretary of State Armitage, in New Delhi after visiting Islamabad, said Pakistani President Pervez Musharraf had told him he was ready to do anything he could to avert a conflict with India.

AMERICANS OPTIMISTIC

Armitage will brief Defense Secretary Donald Rumsfeld on Saturday on his talks in India and Pakistan before Rumsfeld heads to the region himself, a U.S. official said.

Rumsfeld, who was in Estonia, said he has some specific proposals to present to Islamabad and New Delhi when he travels to South Asia next week, but declined to give details.

In Washington, State Department spokesman Richard Boucher said the United States had detected a significant reduction in the number of guerrilla infiltrations from Pakistani-controlled Kashmir into the Indian-held part of the territory.

Armitage's mission has raised hopes that both sides can be pulled back from the brink of a possible nuclear catastrophe through international diplomatic pressure.

Indian Foreign Minister Jaswant Singh said India was committed to peace and would reciprocate if Muslim Pakistan acted on its pledge to crack down on Islamic militants.

"We are very much committed to moving on the path to peace because to peace there is no alternative," he said.

Uday Bhaskar, a strategic analyst at the New Delhi-based Institute of Defense Studies and Analysis, pointed to diplomatic progress that signaled a lessening of the chances of war.

"Everyone is making the right noises. People are talking about giving Musharraf another four weeks, saying let us see whether he is implementing what he has said he will do.

"All these noises indicate India won't take any impulsive action. The prime minister says we want to resolve this peacefully. There is incremental progress," Bhaskar said.

CROSS BORDER SHELLING

As artillery exchanges boomed across the frontier on Friday, killing at least eight people, Indian forces and armed Kashmiri nationalists clashed in various parts of Indian-ruled Kashmir and nine people were killed, Indian police said.

The nationalists have been battling Indian forces in the disputed region since 1989 and Indian officials say more than 33,000 people have been killed in the conflict.

Fears that millions could be killed in the world's first nuclear war have also sparked a big evacuation by thousands of foreigners from both countries. Britain urged its citizens to leave on Friday while commercial airlines were still operating.

PHOTO CAPTION

Indian army soldiers keep watch from a post near the India-Pakistan border, some 16 miles from Jammu, June 8, 2002. Indian and Pakistani troops traded small arms fire along their tense frontier in Kashmir, as a U.S.-led diplomatic drive sought to pull the South Asian foes back from the brink of war. (Arko Datta/Reuters)