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SRINAGAR, India, Sunday (AFP) Residents of Indian-administered Kashmir say they are dejected by the apparent hardening of divisions between nuclear rivals India and Pakistan, fearing peace in the region is as far away as ever.

Indian Prime Minister Atal Behari Vajpayee accused Pakistan of using terrorism as a "tool of blackmail" Thursday in a speech to the United Nations General Assembly.

A day earlier, Pakistani President Pervez Musharraf had accused India of violating human rights in the New Delhi-controlled zone of Kashmir and termed the anti-Indian insurgency in Kashmir an "indigenious freedom struggle".

"The hardening of stands has dejected all peace-loving Kashmiris," said university lecturer Mushtaq Ahmed. "The UN is a forum where problems are resolved but what we saw was the heads of two countries fighting a verbal war."

Ahmed said unless a friendly country steps in to mediate, the India-Pakistan hostilities would continue. Kashmir has been the cause of two of the three wars the two countries have fought since they split and became independent in 1947.

"I tell you Kashmir is hopeless. One day there is a hope and on the other it is dashed to ground," said Alina Bashir, a science graduate. Bashir, like a majority of Kashmiris, had seen a ray of hope in April when Vajpayee extended his olive branch.

"I don't know what the two countries are gaining by confronting each other," said doctor Mohammed Arif."Whatever the circumstances, the two sides should sit around the table and try to resolve the issue forever," he said. "I am hopeful that once the two sides start talking those with the gun will definitely give peace a chance." Meanwhile Muslim separatists in Indian Kashmir on Sunday denounced Britain's military chief for supporting New Delhi's charges that Pakistan supports "terrorism" in the province.

General Michael Walker made the comments on a visit to Kashmir's summer capital Srinagar where he met senior Indian army officers including a general leading anti-insurgency operations."I have had the case very strongly made by the general and his staff today that there is support for terrorism coming from across the border," Walker told reporters.

"From everything that I have been hearing that seems to be the case," he said in response to a question.

Kashmir's main separatist alliance the All Parties Hurriyat Conference (APHC) expressed "surprise" at Walker's remarks.

"No one can justify the description of a 56-year-old freedom struggle as terrorism," the Hurriyat said in a statement.

"APHC urges the world community to draw a line between freedom struggle and terrorism," it added.

The pro-Pakistan rebel group Jamiat-ul-Mujahedin said Walker's statement was "unwise" and blamed Britain, the former colonial power, for creating the Kashmir problem.

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