S-2 & Energon:
As I have mentioned in other threads, its important to realize that the nature of this conflict has changed dramatically from India's point of view. This is no longer a territorial war, primarily because there is no advantage or future to perceiving it in that way.
India has instead reoriented itself to enter the global community on the basis of its economy
That may be, but Pakistan cannot make decisions related to national security based on somebody's say so. I don't mean to suggest that you are dissembling when you argue in favor of this view, but that in the absence of either bilateral or international engagement/assurances, the only tangible means of assessing the threat level from India remain her past policies towards Pakistan, and on that count very little credence can be given to the idea espoused above.
In terms of 'territorial gains', the argument is not that India would actually try and occupy large swathes of Pakistan, which would be a rather foolish move given the subsequent resistance from occupied Pakistanis, but that India would seek to strengthen its positions along the LoC and elsewhere - a 'super sized' Israeli style buffer if you will, and attempt to justify it under the pretext of attacks like that in Mumbai.
Had those assailants come up the Hudson river and recreated that scenario in downtown Manhattan, we'd have flattened the nation that spawned them.
Merely because the US has the military might to do so against almost any nation in the world does not make it the right policy to pursue. As I pointed out earlier, there is no guarantee Pakistan, or for for that matter any country with weak institutions, can provide against terrorist attacks.
Even with Pakistan going full tilt against the groups in the North West, it will take decades and billions before things normalize and institutions can become strong enough to offer a reasonable chance of preventing terrorists and terrorism. Your argument and conditions therefore are unrealistic - Pakistan cannot live under the shadow of constant aggression by India on the basis of preventing terrorist attacks that more than likely will happen again.
If I were to hazard a guess based on the statements by MMS and US officials on the resumption of dialog between India and Pakistan, I would say that the yardstick being proposed is lower, and realistic - tangible action against the Mumbai perpetrators.
Realistically, the outlook toward Pakistan will probably remain constant regardless of which government comes into power.
I think the concern is a deterioration in the outlook were a leadership not as pragmatic as that of MMS come to power. Again, you can argue that nothing will change till you are blue in the face, but from Pakistan's national security perspective, until it's from the horses mouth it really isn't worth much.