Two months ago, tourists were flocking in near-record numbers to enjoy the matchless beauty of Srinagar and its surroundings. With a new international airport scheduled to open within months, the world's highest conflict zone was forecasting an economic boom.

Last night it was under curfew. At least 20 Muslim activists have been killed and 500 injured in Indian-controlled Kashmir in the past three days. Police in one town were under orders to shoot protesters on sight, while those burying their dead demanded “blood for blood”.

The dispute that threatens to undo four years of painstaking progress towards peace in Kashmir has the hallmarks of a Swiftian satire. It started at a Hindu shrine high in the Zanskar mountains, where Muslims are in a majority but Hindu pilgrims have long sought more space. In June, Delhi donated 40 hectares for this purpose to a Hindu trust. Local Muslims were outraged, and the gift of land was withdrawn. It was then the turn of Hindu hardliners to erupt, attacking Muslim businesses and blocking their only trade route out of the Kashmir Valley.

On Monday, a Muslim separatist was shot dead by police while leading a protest towards the line of control between Indian and Pakistani-controlled Kashmir. Indian security forces tried to stop his funeral becoming a mass rally - hence the curfew, which has succeeded only in provoking further deadly protests. Six weeks of spiralling sectarian anger and weak leadership have all but extinguished Kashmir's faint hopes of peace and prosperity.

This crisis was avoidable. To moderates in Delhi and Islamabad it is also exasperating. Yet it cannot be dismissed as a little local difficulty.For all the superficial calm that had started enticing tourists back to Srinagar, Kashmir remains a tinderbox. The Pakistani Inter-Services Intelligence has long since treated the line of control as the front line in a simmering proxy war with India. And India maintains a massive security presence in Kashmir for the same reason, and to police the deep hostility between Hindu and Muslim factions on its own side of the line.

Their grievances are a rallying cry for extremists across the sub-continent. Hindu nationalists protested in Delhi, Bombay and Agra yesterday in solidarity with pilgrims in Kashmir, and anti-Indian rhetoric from Pakistani politicians has grown more shrill, not less, with the eclipse of President Musharraf. Both countries may be nuclear powers. This by no means rules out a conventional war between them.

Restraint is more vital on both sides than at any time since they began talks on Kashmir in 2004. But it is India that can do most to de-escalate the violence and restart negotiations. Indian forces were wrong to use live rounds against protesters on Monday and wrong to threaten a shoot-to-kill policy since then. Above all, India has been unreasonable in pocketing politically risky concessions by Mr Musharraf on Kashmir, while offering nothing in return.

The time has come for reciprocity. Delhi should make it easier for its Kashmiri Muslims to trade with Pakistan. And it must dare to hold talks with their respresentatives on the central subject of autonomy. As the past 48 hours have shown, in Kashmir and beyond, ceasefires are not the same as peace.