After the failure of high level talks between India and Pakistan over their long running disputes, both countries are now locked in an escalating proxy war in Afghanistan.

If no solution is found to reconcile Pakistani and Indian interests in Afghanistan, the coming months might see stepped up terrorist attacks against Indians in Kabul and the return of militants infiltrating Indian Kashmir from Pakistan.

The fact that in recent weeks a large number of Taliban operatives have been captured in Pakistan signals an intensified struggle over the fate of Afghanistan rather than a winding down of the conflict.

With Afghan President Hamid Karzai seeking negotiations with the Taliban, some of whom Pakistan distrusts, along with India increasingly concerned about the Pakistan-backed Taliban coming to power in Kabul, the conflict is reaching a new stage of intensity. Even as an intensive US and NATO military offensive against the Taliban is underway in southern Afghanistan, neighboring states are already considering the Americans as good as gone and preparing for an end game scenario with old rivalries renewed.

While Pakistan charges India with undermining Pakistani influence in Afghanistan, India fears that Pakistan is preparing the ground for pro-Pakistan elements from the Taliban to negotiate with Kabul, in an attempt to force India out of Afghanistan after US forces start a slow withdrawal in July 2011. Meanwhile, a year after Pakistani militant group Lashkar-e-Taiba carried out Mumbai attack they are yet to be brought to justice.

Against this backdrop, Indian and Pakistani Foreign Secretaries met in New Delhi at the end of February but failed to make any progress. Just a day later a suicide squad in Kabul hit two hotels, killing 16 people including 7 Indian civilians and two Indian army majors. Three days later the Afghan government accused Lashkar-e-Taiba of being responsible for the Kabul attack.

In a series of briefings to the Pakistani and foreign media, Pakistani generals have portrayed India as seriously threatening Pakistan, using its embassy and consulates in Afghanistan to harbor, train and fund Baloch separatists who are waging an insurgency in Balochistan province, trying to undermine Pakistan's influence in Afghanistan and even for backing elements of the Pakistani Taliban. Tensions heightened after four Pakistani workers were gunned down in Kandahar in early March by unknown assailants. The Pakistani media has accused the Indian consulate in Kandahar of organizing the attack.

Pro-military commentators have risen to the occasion demanding that as Pakistan now faces a two-front situation, India should be pushed out of Afghanistan by the Taliban or as a pre-condition which the US must accept, if and when peace talks between the Taliban and the Kabul government are held.

India was seriously rattled when the US and NATO agreed at the January 28 London conference on Afghanistan to begin "re-integrating" Taliban fighters and field commanders and lavishly funding a peace package for them. President Karzai went much further by demanding ‘reconciliation' with the mainstream Taliban led by Mullah Mohammed Omar. India was aghast at the unanimity of the international community which is tiring of the war in Afghanistan, as India has vociferously opposed any dialogue with the Taliban.

India sees the Afghan and Pakistani Taliban and Al Qaeda working closely with anti-Indian groups based in Pakistani Punjab, such as Lashkar, who have begun to re-infiltrate into Indian Kashmir to restart the guerrilla war which has been dormant since 2004. Even US officials say that Punjabi militants are increasingly fighting with the Taliban in Afghanistan.

Although Karzai has declared that "Afghanistan does not want proxy war between India and Pakistan," India's real concern is that Pakistan appears determined to position itself center stage of any dialogue between the Taliban and Kabul. Pakistan's Interservice Intelligence Bureau recently arrested key Afghan Taliban leaders who have been engaged in talks with representatives of the Karzai administration without Pakistan's ISI being involved.

Senior US officials in Washington say the initial arrest of the powerful second in command Taliban leader, Mullah Abdul Ghani Baradar in Karachi in early February was accidental – after the CIA discovered the location of a meeting of Taliban commanders where Barader was found. The ISI arrested him and then decided to bring in all his supporters, resulting in more arrests. Kabul's request that Barader be extradited was refused. Despite repeated requests, US officials have been given only limited access to question Barader and even less access to question other arrested Taliban.

However, despite his significant sanctuary in Pakistan, Barader was at odds with the ISI talking independently to Karzai's representatives without taking the ISI into confidence and instead enlisting the help of Saudi Arabia. Over the past 12 months Saudi Arabia has been intermittently involved in helping the two sides hold informal talks that so far have not led to real negotiations, although they have the potential to do so. The Saudis, although close allies of Pakistan, had also appeared willing to keep the ISI out of the dialogue.

The Obama administration is still far from accepting the idea of negotiating with the Taliban leadership and US officials were annoyed with Karzai after the London conference for raising the issue, but the ISI and the military are now forcing the pace to have a three way dialogue between Kabul, Islamabad and the Taliban, while also pushing the US administration to accept such a dialogue and agree to a major role for the ISI.

India has now embarked on a diplomatic offensive to counter Pakistan's growing role, sending National Security Adviser Shivsankar Menon to Kabul in early March and the Foreign Minister S M Krishna to Iran in coming weeks. Iranian president Mahmoud Ahmedinejad's hastily arranged trip to Afghanistan this week underlined Tehran's keen interest in the Afghanistan endgame. India has asked Karzai about his secret negotiations with the Taliban and how India can play a role. At the same time India appears to be wanting to rebuild the alliance with Iran, Russia and the Central Asian Republics that opposed the Taliban in the 1990s and supported the non-Pashtun Northern Alliance.

Missing as yet from this complicated maneuvering is the US administration, which will have to decide soon on supporting Kabul-Taliban talks if it is not to see its military and economic development offensives in Afghanistan undermined by growing regional rivalries. Also missing from the equation is Pakistan's civilian government, which has been bypassed in the foreign policy decision making by the military and the ISI. It is well known that the much weakened President Asif Zardari would like to improve relations with India and Afghanistan and encourage trade and investment, rather than foment a new set of regional tensions.

However a too overt Pakistani role is likely to be rejected by Karzai, by Afghanistan's non-Pashtuns and civil society and even by many Taliban who are tired of fighting and would like to end their dependence on Pakistan.

Any sign of excessive Pakistani influence in Afghanistan would immediately prompt a reaction from India, Iran, China and the Arab Gulf states, which could include backing anti-Pakistan proxies in Afghanistan and making it even more difficult for Afghanistan to achieve peace and stability.

Ahmed Rashid is a Pakistani journalist and author, most recently of "Descent into Chaos: The US and the Disaster in Pakistan, Afghanistan and Central Asia." Reprinted with permission from YaleGlobal Online, the flagship publication of the Yale Center for the Study of Globalization