For more than a decade, the military has trained and financed civilian jihadis who cross into the Indian-controlled part of Kashmir to create havoc.
These incursions into the Indian-controlled part of Kashmir have brought repeated violence and led to a military buildup along the border.
The Indian prime minister, Manmohan Singh, has also announced a $143 million relief package for the Indian-controlled part of Kashmir.
Since 1989 Pakistan has supported an Islamic insurgency in the Indian-controlled part, although it denies providing material aid.
Both countries claim Kashmir, which is divided between them, and Pakistan-backed militants have waged a 12-year insurgency in the Indian-controlled part of Kashmir.
Earlier this year, Muslim militants massacred more than a score of Hindus in a village in the Indian-controlled part of Kashmir.
In the last decade, as an armed insurgency arose in the Indian-controlled part of Kashmir, Pakistan's military provided aid.
Nearly two-thirds of the population in the Indian-controlled part of the state is Muslim.
India has been fighting to evict what it says are Pakistan-backed Afghan mercenaries and Pakistani troops from the Indian-controlled part of Kashmir.
Most had been trying to cross the line that separates the Pakistani- and Indian-controlled parts of the territory.