Pakistan and India have too many unresolved issues going back to partition. I will not regurgitate those issues here since they are a lengthy list and have been discussed to death on this forum. The British did a great final job of divide and rule (for the west) when they partitioned British India. They even left animosity between the newly formed Pakistani state and the existing state of Afghanistan which is difficult to resolve. Even if the Kashmir issue is resolved to the mutual satisfaction of Pakistan and India, the animosity cannot be resolved since a hundred other issues remain outstanding.
An arms length diplomatic relationship as currently in place is the best policy for both Pakistan and India. Will a strong Pakistani economy have a negative influence on India and vice versa? Definitely so. As evidenced by current Indian arms procurement made possible by their growing economy and Pakistan in the past, whenever either nation enjoy a growth in economy, the foremost thought by that respective government is to procure arms to show muscle to the other side. India may claim that they are doing so to thwart China etc but the only weapon which India has used against China in the past 5 years or so are rocks. Compare the weapons used against Pakistan on the other hand. Not to say that Pakistan is any less guilty of the same conduct whenever there is a spike in its economy. 1965 and Kargil etc are evidence of their brotherly love for India whenever they are in a strong position. The ultimate solution is that it is better for ISI and RAW to fight each other on behalf of their nations and for each nation to blow a few bunkers across the LoC than for a full blown war which will destroy most of Asia and eventually the world