The President observed that there has been a marked improvement in the bilateral environment and emphasised that the leadership in both the countries should seize the moment for establishing permanent peace in the region.
"Failure is no more an option, we have to confront disputes and develop confidence," he said at the banquet attended by members of his delegation, members of Indian parliament and entrepreneurs.
The President said the two countries should show flexibility and courage for moving forward on all issues as they demonstrated on the agreement on the commencement of Muzaffarabad-Srinagar bus service.
Continuing, the President said even if the two South Asian countries have the goodwill and want to have peace but brush the disputes under the carpet and move forward on the confidence-building measures, there cannot be a guarantee of sustained peace in future.
"It is my vehement desire that we have substantive dialogue on all issues including Jammu and Kashmir, a substantive dialogue that lays the foundations for a forward momentum towards the resolution of issues and disputes."
The President said he is in India with a message of peace from the people of Pakistan. He said his visit had an auspicious start as he visited the sacred shrine of Hazrat Khawaja Moinuddin Chishti, where he prayed for peace, amity and harmony between the two countries and prosperity of the people of Pakistan.
He said the peace process between the 'two countries appears to be irreversible as people of both countries want peace for their sustainable progress and prosperity.
The President extended a hand of co-operation for achieving durable peace in the region. The President thanked the Indian Prime Minister for extending a warm hospitality to him and his delegation.
Earlier, President Musharraf told Indian External Affairs Minister Natwar Singh that the world is focused on Pakistan-India peace process and watching the developments with deep interest.
The two countries, he said, should make use of the atmosphere of cordiality existing between the two countries.
The Indian Prime Minister, in his address, said the people of the two countries and Jammu and Kashmir have paid a heavy price in terms of peace and development because of conflicts.
"The time has come to find enduring solutions to all problems between our countries - the people of two countries need a positive outcome."
He said both the composite dialogue and the confidence-building measures need to be carried forward.
In an arrival statement, President General Pervez Musharraf said he expects to hold purposeful talks with the Indian leadership on all outstanding issues between India and Pakistan, particularly the Jammu and Kashmir dispute.
The President said the composite dialogue as well as people-to-people contacts in the last 15 months has created a huge constituency of goodwill in both countries, and led to an improved political environment.
"We need to seize this unique opportunity to address all our bilateral issues, including the Jammu and Kashmir dispute," he said.
The President hoped that his meetings with the Indian leadership over the next two days would help strengthen and invigorate the peace process to fulfil the "historic responsibility" of both countries to settle disputes and build a better future for the coming generations.
"I am glad that my visit to India has commenced with prayers at the Dargah (shrine) of one of the most revered Sufi saints Hazrat Khawaja Moinuddin Chishti (RA).
"I am pleased to be in New Delhi. I look forward to an interesting Pakistan-India cricket encounter in the last ODI of cricket series in New Delhi. At the same time, I expect to hold purposeful talks with the Indian leadership on all outstanding issues between India and Pakistan, particularly the Jammu and Kashmir dispute, which has caused tension in our bilateral relations since 1947," the President said.
President Musharraf arrived here aboard a special aircraft on a three-day visit aimed at giving a fresh impetus to the ongoing Pak-India peace process with focus on the Kashmir dispute.
The President, who is accompanied by First Lady Begum Sehba Musharraf, was accorded a warm red carpet welcome at the Air Force Station in the Indian capital.
He was received by External Affairs Minister K. Natwar Singh, Foreign Secretary Shyam Saran, Pakistan's High Commissioner to India Aziz Ahmed Khan and Indian High Commissioner to Pakistan Shiv Shankar Menon.
Heading a 45-member delegation, the President earlier arrived at Jaipur, and went to Ajmer Sharif in a helicopter to pay obeisance to Hazrat Khawaja Moinuddin Chishti (RA).
The President's entourage includes Foreign Minister Khurshid Mehmud Kasuri, Information Minister Sheikh Rashid Ahmed, Commerce Minister Humayun Akhtar Khan, Minister of State for Youth Affairs Mohammed Ali Durrani, Minister of State for Religious Affairs Amir Liaquat Hussain and Information Secretary Shahid Rafi.
President Musharraf will meet Indian Prime Minister Manmohan Singh on Sunday in the famous Hyderabad House after witnessing the last Indo-Pak ODI cricket match for over an hour at Ferozshah Kotla Stadium.
He will be received at the stadium around 0900 hours by Prime Minister Manmohan Singh who will escort him to the special enclosure reserved for members of the Pakistani and Indian delegations. The members of both cricket teams will be introduced to the President.
Congress President Sonia Gandhi and her children will be among the VIPs joining President Musharraf and Prime Minister Singh to witness the one-day international cricket match on Sunday.
Former prime minister Atal Behari Vajpayee and BJP President L.K. Advani and Lok Sabha Speaker Somnath Chatterjei are also expected to witness the cricket encounter.
On Sunday, President Musharraf will meet his Indian counterpart A.P.J. Abdul Kalam who will also host lunch in the honour of the visiting dignitary. Congress President and UPA chairperson Sonia Gandhi and opposition Leader L.K. Advani will call on President Musharraf the same day.
President Musharraf will meet APHC chairman Syed Ali Shah Geelani and other senior Hurriyat leaders also on Sunday, and Pakistan's High Commissioner to India Aziz Ahmed Khan will host a dinner in honour of the President.
The President will meet members of the Editors Guild of India on Monday morning before leaving for Manila.
Before leaving on a three-day visit to New Delhi on the first leg of his three-nation tour, the President on Saturday called for early inclusion of Kashmiris in the Pakistan-India dialogue process.
"We will try to make them (Kashmiris) a part (of the dialogue process) as soon as possible," he said in reply to a question while talking to reporters before his departure.
"As far as I am concerned, earlier the better, but we need to see it has to suit your counterpart (the Indian leadership) and us," he added.
Prime Minister Shaukat Aziz, Senate Chairman Mohammedmian Soomro, Vice Chief of the Army Staff General Ahsan Saleem Hayat and other senior government and military officials saw him off at the airport.
The President, who would be meeting Kashmiri leaders in New Delhi, said it was very important that he met them.
"It is extremely important that I meet them because we have to decide on their future," he said and added that "therefore their involvement is extremely important".
President Musharraf agreed with media reports, which were describing his visit to India as 'historic'. "I think, it is a very historic visit, after Agra.
He said: "I think it (visit) has more chances of optimism because the environment - when you compare Agra with today - is very different. It is a congenial environment; it is a friendly environment," he added.
He said there was a desire from both sides to make the visit a success, "and, therefore, I think it is very much a historic visit".
Pakistan, he said, has very good and friendly relations with the two South-East Asian countries, and hoped that his visit would help to further strengthen these ties and develop understanding on all political and world issues.
The talks, he added, would also focus on enhancing economic and trade ties.
In Indonesia, the President said, he would also offer his condolences on the recent tsunami disaster.
President Musharraf would also attend the Bandung conference, to be attended by Asian and African leaders.
The President said he would exchange views with these leaders, saying "it has its own significance".