HIGLIGHTS: Pakistan Says India Has Lost Dozens of Personnel||India More Cautious with War Talk||Musharraf Won't Take Further De-escalatory Steps Until India Reciprocates||Kashmir Elections High On Armitage Agenda||Pakistan Rejects U.S. Criticism against Musharraf Expanding His Powers||Washington Agrees to Reschedule 3 billion Dollars Worth of Pakistan's Debt|| STORY: A top U.S. diplomat was due to take a new South Asia peace mission to Islamabad on Saturday after Pakistan ratcheted up tensions with nuclear rival India by accusing it of an air attack in disputed Kashmir.

India denied the claim as U.S. Deputy Secretary of State Richard Armitage met top officials in New Delhi on Friday.

Pakistani military spokesman Major-General Rashid Qureshi said earlier in Islamabad India had launched a ground assault on a mountain post at Gultari in the north of the disputed Himalayan region on Thursday night and suffered heavy casualties.

Speaking to reporters in the Indian capital, Armitage said he could not comment specifically on the Pakistani air strike claim.
India's last major air strikes against Pakistani forces were during the 1999 confrontation in Kashmir's Kargil region that almost plunged the two countries into their fourth war.

There was no independent confirmation of either claim but each side accused the other of undermining Armitage's visit.

The row comes during an election campaign for a new assembly in India's Jammu and Kashmir state that New Delhi hopes will underline the legitimacy of its rule but fears Pakistan and Kashmiri nationalists will try to derail.

Pakistan has dismissed the planned election as "farcical."

India More Cautious with War Talk

The détente that Mr. Armitage negotiated two and a half months ago has held, but it has also hardened into what Western diplomats describe as a stalemate.

In addition to a number of publicly announced de-escalation measures, like pulling naval vessels away from Pakistan's coast, India has taken quieter steps that reduce the immediacy of the war threat -- for instance, reinstating leave for the troops massed along both the Line of Control and the border. Indian officials, perhaps still stung by the economic effects of the American travel advisory imposed at the end of May and lifted last month, have been more cautious with war talk.

But the basic situation -- two nuclear-armed neighbors eyeball-to-eyeball -- has not changed. Col. Shutri Kant, a spokesman for the Indian Army, said troops regularly continued to exchange small arms fire (Pakistan always fires first, he said). Even before Pakistan's accusations of an Indian air raid on Thursday in Kashmir, he said there had been at least one artillery exchange this month.

Musharraf Won't Take Further De-escalatory Steps Until India Reciprocates

In an interview with Agence France-Presse this week, Pakistan's leader, General Musharraf, denied that there was any remaining government-sponsored infiltration of militants into Indian-controlled Kashmir; he said he would take no further steps toward curbing cross-border terrorism until India reciprocated with a dialogue. "I'm not going to take 10 steps when India doesn't take one even," he said.

Each side accuses the other of trying to skew coming elections in Jammu and Kashmir.

Kashmir Elections High On Armitage Agenda

Those elections will be a focus of Mr. Armitage's visit, as American officials have made clear that they see a free, fair vote in the state as crucial to at least some momentum toward peace talks. Rigged Kashmiri elections in the late 1980's helped prompt the armed uprising against India that began in 1989.

Just as Secretary of State Colin L. Powell did when he visited the region last month, Mr. Armitage will urge the Indian government to do whatever is necessary to ensure a credible result that yields a more representative government in the state.

Indian officials, however, say they believe that Pakistan is planning to encourage violence by armed Kashmiri nationalists as a way to disrupt the election and suppress voter turnout, thereby delegitimizing the results. They say they want Mr. Armitage to press Mr. Musharraf not to interfere.

Last week Mr. Musharraf dismissed the elections as an Indian attempt to legitimize its "illegal occupation." India promptly accused Mr. Musharraf of plotting to sabotage the vote.

Pakistan Rejects U.S. Criticism against Musharraf Expanding His Powers

The Pakistani government dismissed U.S. criticism of President Gen. Pervez Musharraf for expanding his powers, saying Friday that State Department critics were unaware of the facts.

Foreign Ministry spokesman Aziz Ahmed Khan said Musharraf acted with full legal authority when he implemented constitutional changes which critics have denounced as undemocratic and that U.S. critics were "not fully aware of the facts."

Khan was responding to comments made Thursday in Washington by State Department spokesman Philip T. Reeker, who said the United States was concerned that Musharraf's "recent decisions" could make it more difficult "to build strong democratic institutions in Pakistan."

Reeker was referring to the 29 constitutional amendments announced Thursday which among other things granted the president the authority to dismiss parliament and appoint top posts in the military. The amendments also established a military-civilian council, with Musharraf as chairman, to oversee the performance of the prime minister and parliament.

Those amendments have enraged the country's opposition parties, which accused Musharraf of trying to perpetuate military rule under the guise of democracy. Musharraf, the military chief of staff, seized power in October 1999 in a bloodless coup that toppled Prime Minister Nawaz Sharif.

Pakistani critics claim the measures have polarized political life and will complicate relations between the president and the future parliament.

Washington Agrees to Reschedule 3 billion Dollars Worth of Pakistan's Debt

The United States, meanwhile, signed an agreement with Pakistan on Friday to reschedule 3 billion U.S. dollar of the country's debt - part of a package of pledges which Washington made after Musharraf threw his support last year to the war against terrorism.

The U.S. Congress is expected to approve the debt relief in the new fiscal year, which begins October 1.

PHOTO CAPTION

Pakistan military spokesman Major-General Rashid Qureshi points towards a map during a news conference in Islamabad August 23, 2002. Pakistan accused India of sending troops and its air force to attack a Pakistani mountain outpost in the north of the disputed Kashmir region overnight, in what Islamabad called a 'highly irresponsible and escalatory act.' Photo by Mian Khursheed/Reuter