Pakistan President Pervez Musharraf on Monday told top commanders of Pakistan Army there was 'positive movement' on resolving Kashmir and other contentious issues between India and Pakistan but at the same time Islamabad will not lose sight of its national interests while finding a solution.

Musharraf on Monday spoke positively about India-Pak peace process in his address at the Formation Commanders Conference at Rawalpindi.

The four-day meeting of the Commanders, regarded as a top policy body of Musharraf's regime, was taking place at a time when he was facing biggest political crisis after his move to suspend Supreme Court Chief Justice Iftikhar Mohammad Chaudhry as well challenge posed by radical Islamic clerics to impose Shariah law in Islamabad.

Musharraf spoke at length on India-Pak relations and expressed optimism on conflict resolution between the two countries. Relations between Pakistan and India have never been better, a defence statement quoted him as saying.      

"There is increase in trade and economic activity and CBMs are progressing well," he said, adding, "There is positive movement in resolution of issues of conflict specially Kashmir."

Speaking on the domestic situation Musharraf said internal threat is posing the greatest challenge to integrity of the country. Pakistan faces the menace of extremism, obscurantism and religious bigotry, he said apparently referring to efforts by radical clerics to impose Shariah law in Islamabad.

Commenting on incidents of extremism in Islamabad, Musharraf said the government was following a prudent course in tackling the 'misguided youth.'

"Moderate forces must win and we must defeat extremism, if Pakistan has to progress," he said.

All top army commanders, including Joint Chiefs of Staff Committee Chairman General Ehsan Ul Haq, Army Vice Chief Staff General Ahsan Saleem Hyat, corps commanders, principal staff officers and formation commanders attended the meeting.

Musharraf said the country was passing through a difficult phase with turmoil in the region, which has a direct or indirect impact on Pakistan.

"Because of its important geo-strategic location, Pakistan is and will continue to play its rightful role and contribute positively towards peace and harmony in the region. With pragmatic policies and progressive approach to develop the potential, Pakistan can play a significant role and become an important economic trade hub and an energy corridor," he said.