For nearly a decade, despite constant tensions—and even large-scale terrorist violence—between Pakistan and India, there is one thing the two nuclear-armed states have kept largely intact: their 2003 cease-fire agreement in Kashmir. Over the past week, however, that agreement has suddenly seemed in danger of unraveling, with alarming killings along the defacto border between Indian and Pakistani Kashmir and threats of further escalation by senior officials on both sides. Though it has until now received little attention in the international press, this new confrontation poses a grave threat to the entire region. We ignore it at our peril.

The escalation began on January 6, when Indian forces intruded into Pakistani territory, killing one Pakistani solider and wounding another. Two days later, Pakistani forces retaliated by crossing the Line of Control (LoC), the military line separating Indian-controlled Kashmir from Pakistani-controlled Kashmir, and killing two Indian soldiers. According to Indian officials, the Pakistani intruders beheaded one of the soldiers, carrying away the head, and mutilated the bodies of both. Since these events, heavy artillery shelling has taken place every day, and on January 10, another Pakistani soldier was killed by Indian fire.

In the days since these events, the Indian and Pakistani governments have been trading counter-accusations—accompanied by threats of further attacks. On Monday, Indian army chief Bikram Singh alleged that the beheading of the Indian soldier had been “premeditated” by the Pakistani military and said that “we reserve the right to retaliate at a time and place of our choosing.” Both sides have vowed not to turn the issue into an international crisis, but with the rain of abuse each side is now heaping on the other—amplified by widespread press coverage in both countries—there appears to be little room to end the standoff and pursue an impartial investigation of what triggered the fighting.

The violence is particularly disturbing because Kashmir has long been one of the most explosive issues between the two countries. After three wars and decades of tension over the LoC, a relative peace was achieved in 2003 when the governments of Pakistan’s former military dictator General Pervez Musharraf and India’s right-wing Bharatiya Janata Party entered into a cease-fire.

Remarkably, that agreement has stuck until now, despite the vicious terrorist attack on Mumbai in 2008 in which 164 people were killed by members of the Pakistani militant group Lashkar-e-Taiba (LeT), based in Lahore, and the growing number of militants, including LeT members, along the Line of Control. But on January 10, LeT leader Hafiz Saeed said that, while his group did not want further escalation, it would fight back if Indian troops again crossed over the LoC. Lashkar militants have close ties to Pakistani military intelligence and have become increasingly powerful under Pakistan’s weak-kneed current government, led by the Peoples Party. Members of the group have held public rallies, appeared on television, and continued to threaten Pakistan and neighboring states, including India.

There is intense speculation as to why either side may want to violate the cease-fire now. The Indian media claims that the Pakistan army is trying to divert attention from the troubles it faces at home, a tactic to avoid criticizing its fundamentalist allies and facing up to the extremists who are tearing Pakistan apart. Some Indian analysts also suggest that the killings were carried out by LeT militants disguised as Pakistani soldiers.

For its part, the Pakistani press says much the same about India—arguing that the badly run Congress government, facing multiple corruption scandals, desperately needs a public distraction from its own problems. Pakistani commentators suggest that some officers in the Indian army have never accepted the LoC, and the Indian press itself has mentioned that the initial killing of the Pakistani could have been carried out by a hard-line Indian officer and his men acting against orders.

The escalation is dangerous for several reasons. Firstly, both countries have been tentatively moving toward rapprochement, with trade and visa-issuing deals that have created closer economic ties for the first time since the early 1960s. At least a dozen Indian investment houses are looking to invest in Pakistan, according to Pakistani officials, as soon as Islamabad allows Indians to invest in the country.

India had long argued that trade and cross-border travel must be eased and Pakistan must crack down on groups like Lashkar-e-Taiba before core issues like Kashmir can be tackled. In recent months, the Pakistanis finally seem to have agreed to closer economic ties, but Pakistan is frustrated that India is still not budging on talking about the larger political issues, including not only Kashmir but other border disputes, the unresolved status of the Siachen Glacier region—an undemarcated border area in the Himalayas just northeast of the point where the Line of Control ends—and above all a continuing battle over the distribution of water resources from rivers that originate in the Himalayas and serve both nations.

The current crisis has also been fueled by Indian frustration with the Pakistan army’s refusal to hand over the perpetrators of the Mumbai attacks and recognize that Pakistani groups were responsible. Indian officials have said privately that their patience has run out, that they cannot move forward on anything beyond trade until Pakistan takes steps to resolve the Mumbai situation. And on Tuesday, Indian Prime Minister Manmohan Singh warned Pakistan that it “cannot be business as usual” with Pakistani acts of terror.

The Pakistani army, meanwhile, has offered no hint about what it wants to do with groups like LeT. As long as they are allowed to organize and act freely, they can hold the peace process hostage: a single major act of terrorism could undo all the progress made so far. The overriding concern of the government should be to avoid such a calamity.

The greater danger is that both countries are armed with nuclear weapons and have the means to deliver them, including short-range rockets and miniaturized nuclear bombs that can carry warheads to smaller targets.

The two armies have been using a telephone hotline established some years ago in order to cool down tensions. UN forces have been stationed in Kashmir since 1948 but have always remained neutral and do not pass verdicts on incidents of violence. The two foreign ministers have been in touch but there has been until now little pulling back.

Clearly the two sides urgently need to reopen a dialogue. Pakistan must address the Mumbai attacks and own up to the involvement of LeT in those attacks, while India must recognize that refusing to talk about the underlying disputes only strengthens the hand of Pakistani extremists and the army, further weakening the civilian government in Islamabad. The next time this kind of violence erupts in Kashmir, it may be too late.