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LUCKNOW, India, Jan 3 (AFP) - War with Pakistan was not a "necessity, Indian Prime Minister Atal Behari Vajpayee said Thursday, but he ruled out bilateral dialogue until Islamabad ends "cross-border terrorism".

"I don't think war is a necessity. I will put in all efforts to avoid it," Vajpayee told reporters in the northern city of Lucknow.

"If diplomatic methods can be applied to resolve the existing problems, I don't see why we should resort to other means," Vajpayee said, while also ruling out any nuclear strike by India amid an intense military build-up on both sides of the border with Pakistan.

"When I said we have a right to defend ourselves, I never meant nuclear weapons. Our nuclear policies are very clear. We have said no first use."

But Vajpayee also said there could be no bilateral talks with Pakistan until it brings "cross-border terrorism" to a complete halt.

He also made it clear that recent steps taken by Islamabad to crack down on Islamic militant groups blamed for last month's attack on the Indian parliament had not gone far enough.

"We shall be open to a dialogue only when cross-border terrorism is stopped," Vajpayee said, effectively scuppering any hopes of formal bilateral meeting on the sidelines of ongoing South Asian regional talks in Nepal.

Vajpayee cited Wednesday's grenade attack by suspected Muslim militants outside the state legislature in Indian Kashmir as evidence that Pakistan "has no intention to give up on terrorism."

India and Pakistan have massed tens of thousands of troops on their border in the wake of the December 13 attack on the parliament in New Delhi, which India says was carried out by Pakistan-based militants and sponsored by Pakistani military intelligence.

Tensions have eased slightly in recent days as Pakistan has announced the arrest of more than 100 Islamic extremists.

But Vajpayee said details of the Pakistani crackdown were too sketchy and it was still unclear how many of those arrested were linked to the parliament attack and other "terrorist" activities in India.

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