ISLAMABAD/NEW DELHI (Reuters) - Since militants killed 179 people in an assault on Mumbai, India has withstood internal pressure to unleash a military attack on Pakistan soil.

Internal dynamics and diplomatic responses are still evolving since the November 26-29 attack. With relations fraught between rivals who have fought three wars, here is a look at some scenarios that could unfold.

WAR

Highly improbable. No one, except the militants, would want it. Indian Foreign Minister Pranab Mukherjee says India is keeping all options open, comments the Indian media have widely interpreted to mean that a military response is still possible. But he has also said that war “is no solution” and accused Pakistan of creating “war hysteria” to deflect blame.

Tensions flared when Pakistan accused Indian warplanes of air space violations on December 13 and said its own fighter jets were scrambled. India denies any incursion. Pakistan has canceled army leave and shifted some troops from its western border with Afghanistan to the eastern border with India.

The two countries went to the brink of war in 2002 after Pakistani jihadi groups attacked the Indian parliament in 2001, but ultimately the risk of nuclear conflict made it a crazy option. Any kind of Indian military action is likely to provoke retaliation, either from jihadis or worse the Pakistani military. India’s strength lies in its ability to win global diplomatic support to pressure Pakistan to clean its house of jihadis.

Pressure on New Delhi to pursue a military option would rise if India was attacked again.

PEACE PROCESS

India has imposed a “pause” on a peace process begun in 2004, which had brought better ties, and also canceled a cricket tour to Pakistan next month. India wants Pakistan to crack down on groups analysts say have been favored by the Pakistani military’s powerful Inter-Services Intelligence agency.

Pakistan denies any links to the Mumbai attacks, blaming “non-state actors,” and says India has provided no evidence for it to investigate. India says it has given Pakistan specific details, including an account by the lone surviving gunman.

A crackdown like one by then military ruler General Pervez Musharraf in 2002, which was widely regarded as a sham, will satisfy neither New Delhi nor Washington.

In what was seen in India as a tit-for-tat move, Pakistan media reported that several Indian nationals had been held after a bombing in the city of Lahore. India then warned its citizens it would be unsafe to travel to or remain in Pakistan.

U.S. President-elect Barack Obama’s incoming administration is expected to encourage settlement of the Kashmir dispute, a step seen as part of the process to stabilize Afghanistan.

India probably realizes it’s better to engage Pakistan than ignore it in the long-run, and it would like to help civilian leaders establish authority over the generals.

U.S. pressure to move more swiftly in peace talks won’t cut much ice with India, so long as it feels uncomfortable about the durability of Pakistan’s democracy. In the short-run the Indian government has an election to fight by May, and will need to show its public results before it resumes the peace process.

NO WAR, NO PEACE

If, analysts say, the Pakistani military refuses to abandon old jihadi assets, there will be no war and no peace. Instead there’s a real danger both sides could use non-state proxies to destabilize each others’ borders. It would be a return to the pre-2002 era, and the world will be haunted by periodic crises between the nuclear-armed neighbors.

That, in turn, will complicate the West’s efforts to stabilize Afghanistan. Some jihadi groups that had been fighting Indian rule in Kashmir have built ties with al Qaeda and the Taliban in Pakistan’s ethnic Pashtun tribal belt on the Afghan border, which the Pakistan army is struggling to control.

If these groups are allowed to thrive they will continue to provide gateways for alienated young Muslims to join a global jihad against their own governments.

REPERCUSSIONS FOR INDIA

The Indian government faces widespread voter anger at the security and intelligence failures that led to Mumbai. The opposition BJP has made it a major campaign issue and many analysts expect an election backlash against the ruling Congress party. But recent state poll wins by Congress, as well as the high-profile appointment of former Finance Minister Palaniappan Chidambaram as the new home minister, have helped take the wind out of the BJP’s sails.

The BJP has also been criticized in some quarters for being opportunistic in making terrorism an election issue.

The government has rushed through a tough anti-terrorism law, seen as a bid to allay public anger.

REPERCUSSIONS FOR PAKISTAN

Prime Minister Yousaf Raza Gilani’s offer on November 28 to send the head of the Inter-Services Intelligence spy agency to New Delhi following a request from Indian Prime Minister Manmohan Singh went down badly in some quarters of the military. But since then there has been no indication the civilian government and military leadership are out of step, even if they disagree on whether the militants should be protected or dumped.

If the crisis worsened, it might bring any differences into the open, risky for a young civilian government dependent on army support for Pakistan’s transition to democracy.

Pakistan already reels from an Islamist insurgency in the northwest. A crackdown on militant groups like Lashkar-e-Taiba and Jaish-e-Mohammad based in the central province of Punjab could end up driving more of their fighters into the arms of al Qaeda and the Taliban in the northwest. That would reinforce the insurgency in Afghanistan and pose more dangers for Pakistan.