It seems that there are deep-seated, vested interests in India as well as Pakistan that stand to gain from and, therefore, ensure that the two countries remain at loggerheads with each other.

Some of these, I believe, include right-wing political parties in India that build vote-banks only on the basis of spreading hatred against religious minorities in India. This hatred naturally extends to Pakistan since the largest minority in India also forms the majority in Pakistan. In Pakistan, it appears that the army and intelligence establishment can be placed in that category, since they are the ones that gain from strained relations between the two neighbours and stand to lose substantially in the case of Indo-Pak relations becoming friendly.

The ISI and RAW play a significant role as well.

The latest entrants appear to be the Islamist and Hindu extremists, who maim and kill to spread not just violence, but, more importantly, hatred.

Large sections of the general public oblige all of the above, by hating ‘the other side’ from the bottom of their hearts.

I agree with the requirement for the kind of policy shifts that you have mentioned, but the question is that whether the political will exists, especially since communalism can be so profitable for the politicians. I do hope that it happens, though.