There had been missed opportunities for peace. According to some Pakistani commentators, India was willing give more to give Pakistan under Vajpayee-Nawaz meetings when Vajpayee came to Pakistan in 1999. But then Kargil happened. Then in 2000, when Musharraf was in India, it were the Indian hawks who prevailed. Then 9/11 happened and, thanks to foreign terrorists and stupid Talibans, India got a golden chance to relentlessly pressure Pakistan. But even then Musharraf-Manmohan were reaching understandings which would have safeguarded Pakistanis and Kashmiris interests in a compromise.
So there have been progress and setbacks. All that is past and debatable. But I think we should look to the future. A future which is based on new realities--realities in which Pakistan has certainly neutralized the Indian threat to a large extent. As I see, Pakistan is on ascendance and India is being cornered. It's a good time to make the current hawks in India smell the coffee.
Also, I believe, contrary to what you are saying, Indian policy wrt to Pakistan is hostile not because India is not a real 'state'. A person like Vajpayee or Modi can certainly 'sell' peace to the Indian population and for that reason alone I'd like to see the Indian Right Wing in power.
Coming to the China debate-- I, like most Pakistanis, would never want to alienate China. China's threat of Veto in the UNSC alone is the best and most powerful diplomatic umbrella Pakistan has. But I also don't want to go so far in embracing China that real opportunities for peace with India are missed. As I said, Pakistan at peace with India offers more gains for Pakistan than an all embracing alliance with China.
What needs to happen is that the current hawks in India need to readjust their policies. They need to learn to live in the region and live in modern time; by that, I mean, becoming a Western poodle or trying to undo real or perceived injustices of distant history is not the way to go forward. It's a debate that needs to happen inside India--for India's own good. Will they have such a debate? I think so.