I think we need to go back in time and think about some of these statements. Prior to the 65 war, this level of acrimony was never there. Maybe the wars have brought up more hate etc., but there was a time after independence, when despite our differences, Pakistan and India got along even though Kashmir was an irritant back then as well so there may be hope.
Obviously the issue of Kashmir cannot be forgotten, however I do not subscribe to "Kashmir banay gaa Pakistan" simply because it is up to the Kashmiris whether they want to be part of Pakistan. Us Pakistanis may want that, but we cannot force that on anyone. But the Kashmiris do deserve to be heard and given a chance to do things their way and this is the stumbling block between true peace.
Unfortunately the issue of Kashmir is so sensitive that it has to be solved before people on both sides can finally decide to move on and come to peace with each other.
One idea behind the formation of EEC (Euro Economic Comm), the forerunner to the current EU, was to lock the nations in trade in such a way that war became too expensive for any member country as attacking and hurting the interests of another meant hurting your own. There is a possibility to convert SAARC into such entity but the territorial irritants would have to be resolved with some give and take and flexibility.