Honestly. Unless both sides understand that neither side will ever let go of any territory its not going to work. Lives will be lost, people will suffer. IF both sides are concerned about the people (which trust me, despite all utterances to the contrary- neither of the two administrations have ever cared as such) then the line as it stands will get signed on and then rendered irrelevant- let the regions (the valley and GB- dunno about AJK- lets leave the latter out for those who know better) have autonomy in terms of certain aspects (freedom-minus like the full-fiscal autonomy between Britain and Scotland). Defense and other related matters will obviously be within the ambit of the central government of both nations for their respective regions (one of the few matters in which the line will remain relevant), with Pakistan handling the defense and central funding, foreign policy of GB and India doing the same for the valley. People will move freely, families no longer separated- IF both GB and Kashmir Valley can be provided a special economic status by both nations (like Hong kong) then even better.
Dunno IF the above will ever happen. Most Indians will not agree to it, nor will most Pakistanis.
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jaibi what do you think?