India says it has proof of a Pakistani link to the Mumbai attacks that killed at least 195 people, and Islamabad says it will move troops to the Indian border if tensions between the nuclear-armed rivals spill over.
Indian officials have said most of the 10 Islamist attackers who held Mumbai hostage with frenzied attacks using assault rifles and grenades came from Pakistan.
They have not given details.
An official in Islamabad said the next one to two days would be crucial for the nuclear-armed neighbours' relations.
The media in India is reporting that the only gunman captured during the attacks on Mumbai has provided testimony of the operation's links to a Pakistan-based militant group.
Ajmal Amir Kamal is reportedly being interrogated in a safe-house in Mumbai.
According to the intelligence sources quoted by several newspapers, Kamal, 21, has identified all the attackers as Pakistani citizens and acknowledged that they were trained by Lashkar-e-Taiba, a militant group fighting Indian rule in Kashmir.
The sources said he confirmed the militants came ashore at Mumbai in dinghies launched from a hijacked vessel whose crew had been killed.
Laskhar-e-Taiba is notorious for a deadly assault on the Indian parliament in 2001 that pushed New Delhi and Islamabad to the brink of war.
Lashkar is officially outlawed in Pakistan, but India has repeatedly accused Islamabad of failing to clamp down on the organisation and its training camps.
Pakistan condemns attacks
Pakistan has condemned the assaults and denied any involvement by state agencies.
The Pakistani government says it will cooperate fully with India in its investigation into the attacks.
Pakistan's president, Asif Ali Zardari, told Indian television he would cooperate in the inquiry.
"If any evidence comes of any individual or group in any part of my country, I shall take the swiftest of action in the light of evidence and in front of the world," he told CNN-IBN.
The attacks on hotels, a rail station, a Jewish centre and other sites began on Wednesday.
Indian troops have been searching the Taj Mahal hotel, hours after killing the last gunmen holding out there.
Commandos said they had killed three militants inside the hotel in an assault on the huge building.
Indian police say 10 militants infiltrated Mumbai for this week's attacks. Nine have been killed and one captured.
Indian Home Minister Shivraj Patil has submitted his resignation, saying he felt obliged to take "moral responsibility" for the attacks Indian TV reports.
Mr Patil, who has been widely criticised in the media for failing to ensure India's domestic security, sent his resignation letter to Prime Minister Manmohan Singh.
Pakistan condemned the assault as a "barbaric act of terrorism" and denied any involvement by state agencies.
It has vowed to cooperate in fighting terrorism but backtracked on a decision to send the chief of its spy agency to India to help with the investigation in a move likely to revive questions about who is in charge of the organisation.
The attacks on two luxury hotels and other sites in Mumbai came after Pakistani President Asif Ali Zardari had made bold moves to improve ties with India.
Pakistani Foreign Minister Shah Mehmood Qureshi told a news conference after a special cabinet meeting the Mumbai attacks had put pressure on ties.
"These are sensitive moments," said Mr Qureshi. "The situation is serious, let us not fool ourselves ... when the people in India feel this is 9/11 for India."
India and Pakistan have fought three wars since gaining independence in 1947 and went to the brink of a fourth after a December 2001 militant attack on India's parliament that India also linked to Pakistan.
"It is in Pakistan's interests and in India's interests to defuse the situation. Lowering of tension is essential," he said.