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ISLAMABAD, Jan 2 (AFP) - Pakistan President General Pervez Musharraf warned India Wednesday it would pay a heavy price for any attack but promised that his country would not be the first to go to war.

"Pakistan wants peace and de-escalation but should a mistake of attacking Pakistan be made they would regret their decision," he told a joint meeting of the National Security Council and the cabinet.

"If attacked we will respond more than adequately and they would not like to bear the damage which we would be able to cast on them," the official Associated Press of Pakistan quoted Musharraf as telling the meeting.

Despite Musharraf's tough warning frantic US-led international efforts to reduce tensions between the nuclear-armed rivals appear to have had some effect.

Pakistan arrested some 100 members of the two Kashmiri militant groups which India blames for the bloody December 13 attack on its national parliament.

India also says Pakistani military intelligence masterminded the attack, a charge which Pakistan denies.

In Kathmandu, the foreign ministers of the two countries shook hands, smiled and exchanged a few words Wednesday at a South Asia regional summit.

But the two countries have massed thousands of troops and heavy armour along their border, swapped tough diplomatic sanctions and banned each other's planes from their airspace.

Musharraf said he had told world leaders that "Pakistan will never be the first to attack. We want peace and de-escalation."

But he added that if it were attacked, "we will hit back very strongly.

"We have the capabilities, force and commitment to defend ourselves. We will come out of the present situation as a more strong, united and dynamic nation," the president said.

Troops from the two sides have for years exchanged sporadic fire across the de facto border in the disputed region of Kashmir -- the spark which ignited two of the three Indo-Pakistan wars in the past half-century.

The firing continued overnight and on Wednesday.

An Indian "wanted list" could complicate the search for a diplomatic solution.

India demands that Pakistan arrest and extradite 20 people whom it calls terrorists and criminals. But Pakistan insists that India provide evidence against them.

"The list is with regard to crimes committed in India. Obviously they have to provide evidence," said foreign ministry spokesman Aziz Ahmed Khan on Wednesday.

Foreign Minister Abdul Sattar was quoted by Pakistan's The Nation newspaper as saying Pakistan would consider extraditions under the SAARC Anti-Terrorism Convention if India takes steps such as providing evidence for an indictment in its own courts.

Khan told a press briefing that "even under the SAARC (South Asian Association for Regional Cooperation) convention, evidence will have to be provided before extradition can take place or any action can take place.

"We have already stated that Pakistan would examine any evidence that is provided and then take action (if warranted)... No evidence has been provided at all."

Any bilateral meeting at the SAARC foreign ministers' meeting and the subsequent summit remained uncertain.

Khan said Pakistan had made every effort for discussions.

"Pakistan has offered talks ... Pakistan has offered to meet Indian leaders at any time, any place, any level," he said.

"Certainly Pakistan does not wish any kind of hostilities, any kind of war."

Khan said India was continuing to present a "threatening posture, a belligerent posture."

He added: "So far we have not got any response towards our offer of dialogue but at the same time we remain hopeful that good sense will prevail."

Khan said the situation remained more or less the same as Tuesday, with no evidence of Indian troop withdrawals from the border to their peacetime locations.

Thousands of ordinary people on both sides, who have fled homes close to the heavily fortified frontier, were praying for a breakthrough.

The administration of India's Kashmir state estimates that 60,000 people have fled their homes.

On the Pakistani side almost half the population of 13 villages in the Lahore area is estimated to have fled, taking livestock and furniture with them.

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