Prime Minister Manmohan Singh said the "trust deficit" between India and Pakistan was the "biggest problem" coming in the way of any improvement in bilateral relations.
Singh also said India is willing to discuss all outstanding issues with Pakistan but it should ensure that its soil is not used for terrorism against this country.
On the forthcoming dialogue between foreign ministers of the two countries, Singh said India is going to make a beginning in improving the bilateral relations, which have seen a chill after the Mumbai attacks in November 2008.
"It has been my effort to try to reduce the gap between our two countries without surrendering or affecting our vital national interest," Singh told reporters.
The prime minister said it was his conviction that the two countries could not make any headway in the composite dialogue, as there has been a lack of adequate trust between the countries.
"There has been a lack of adequate trust and trust deficit is the biggest problem (between the two countries)," he said.
"We are willing to discuss all outstanding issues with Pakistan. But it should ensure that its soil is not used for terrorism against India," he said.
Singh also expressed hope that the new dialogue process can move forward.
"Pakistan is our neighbour. It is my belief that India cannot realise its full development potential unless we have the best possible relations with our neighbours and Pakistan is our largest neighbour," Singh said.
In his reply to another question, Singh said bilateral relations with Pakistan had not reached a level where India could raise the issue of taking back the areas of Pakistan-occupied Kashmir.
"There are many issues that we are discussing with Pakistan. Talks could not reach that level to find solutions to the question asked by you," Singh said when asked about the efforts made by the government to get back Indian territories under Pakistani occupation."Parliament has already passed a resolution describing entire Jammu and Kashmir, including Pakistan-occupied-Kashmir, as part of India," he said.