You have to realise that the government had lost a vote of confidence in Parliament & was effectively in till the elections as a caretaker government. While that is no legal bar, a certain amount of restraint automatically follows. Having said that, a wider war was considered & was thought of as inevitable because of the difficulty the army had to vacate the positions taken by Pakistan. a decision to that effect was taken by the top leadership, only to be held back because Tololing point 5140(I think) was taken on that day itself. The Pakistani positions then started falling continuously after that and that pretty much ended the idea of a wider war.
Not sure whether this is commonly known here but Naik & Mishra, the back channel diplomats for Sharif & Vajpayee had almost decided at one point that Sharif was going to come to India (I believe it was on his way to China) and announce a withdrawal along with fresh negotiations on Kashmir thereby giving Pakistan an honourable exit and some reward for their efforts and would have allowed the Pakistanis to claim a victory of sorts. However as the positions on the ground changed and international diplomatic support to India increased, a decision was taken that there was no reason to indulge the Pakistanis & Sharif. The news of the proposed meeting was leaked to the media deliberately & then called off. India then pressed forward its military & diplomatic advantage and pretty much made sure that when the withdrawal came, neither Sharif nor Musharraf had even a fig leaf to cover their essential bits.
