The U.S. has been pressing the nuclear-armed rivals to restart their peace efforts in hopes that reducing tensions along their border would free Pakistan to focus on its fight against Taliban militants - a key element of U.S. strategy in Afghanistan.
The decision followed talks Sunday between the foreign secretaries of the two countries in Bhutan, the latest in a yearlong string of meetings of top officials intended to rebuild the nations' shattered trust.
A statement released simultaneously in New Delhi and Islamabad said the new talks would focus on counterterrorism, humanitarian issues, peace and security, the disputed Kashmir region and other border issues.
It did not say when talks would begin, but the foreign minister of Pakistan will visit India by July to review their progress.
Pakistan Prime Minister Yousuf Raza Gilani welcomed the talks and praised his Indian counterpart, Manmohan Singh, for the "opening of a new chapter in the relations between the two countries, which Pakistan fully reciprocates."
But there is little expectation of a rapid agreement to end the six decade conflict between the bitter rivals. Even if negotiators managed to bridge the gaps on everything from regional water sharing to sovereignty over a disputed creek, there is no guarantee that the shaky Pakistani government, or even the more stable Indian administration, could sell such a deal to their parliaments and their people.
India and Pakistan have fought three wars - two of them over Kashmir - since they won independence from Britain in 1947. Kashmir is divided between the two countries, which both claim the Himalayan territory in its entirety.
New Delhi broke off reportedly fruitful peace efforts after 10 militants from Pakistan laid siege to the financial capital of Mumbai in November 2008, killing 166 people.
India has accused Pakistani intelligence of being intricately involved in the planning of that attack, and insisted it would not return to the negotiating table until Pakistan cracks down on Lashkar-e-Taiba, the militant group blamed for carrying it out.
Pakistani officials have bristled at criticism they are not doing enough, noting that seven suspects in the Mumbai attacks have been put on trial. Islamabad says it needs more evidence from Indian investigators to make additional indictments.
But India has criticized Pakistan's handling of the prosecution. The trial has been slowed by several procedural delays and the judge has been changed three times. By contrast, the only gunman to survive the assault, Ajmal Kasab, has been sentenced to death in India
Indian officials did not offer any explanation Thursday as to why they changed their minds.
"It's a manifestation of confusion and indecision by the Indian government," said G. Parthasarthy, former Indian high commissioner to Pakistan.
The government only initiated the first peace talks, which began in 2004, after receiving assurances from Pakistan that it would not allow its territory to be used for attacks on India, he said. This time, no such assurance was given, he said.
For its part, Pakistan has called on New Delhi to take action against those responsible for the Feb. 18, 2007, bombing of a train on the Pakistan-India route set up during an earlier thaw in relations that killed 68 passengers. Last month, a Hindu nationalist confessed to an Indian court that Hindu hard-liners were involved in that attack.
Still, talks over the past year were clearly aimed at finding a way to bring both sides back to the peace table. That effort appeared to have foundered in July, however, after the foreign ministers of both countries held a tense meeting in Islamabad.
The press conference after that meeting was delayed six hours as the two sides debated what to say publicly. When they finally emerged to address reporters, Pakistani Foreign Minister Shah Mahmood Qureshi lashed out at a top Indian official for his accusation that Pakistani intelligence was behind the Mumbai attack.
India's foreign minister, S.M. Krishna, then brushed off accusations his country was supporting insurgents in Pakistan's Baluchistan province and shot back that there had been an increase in militant infiltrations from Pakistan into Indian-held Kashmir. Qureshi denied Pakistan was behind any infiltrations.
Until Sunday, that was the last high-level meeting between the two sides.
U.S. government officials have been encouraging talks among India, Pakistan and Afghanistan as a way to bring stability to the troubled region. The U.S. also hopes a peace deal to the conflict would free up Pakistani forces to turn their attention to the militants operating along the rugged, mountainous border with Afghanistan.
That area is thought to be used as staging grounds for attacks against U.S. forces inside Afghanistan.
The decision to resume talks came amid ongoing instability within the Pakistani government. Gilani dissolved his Cabinet on Wednesday, promising to replace it with a smaller, cheaper, group of ministers in a concession to opposition leaders whose support it needs.
Associated Press Writer Ashok Sharma contributed to this report from New Delhi.