With the Amarnath crisis weighing heavily, Prime Minister Manmohan Singh warned on Friday that dividing people in the name of religion could threaten the country's unity and asked political parties to come together in finding a permanent solution to problems of Jammu and Kashmir.

He also appealed to the people of J and K to cooperate in establishing peace and resolving all issues only through dialogue.

Addressing the nation on the 62nd Independence Day from the heavily-guarded ramparts of Red Ford, Singh, who has come under attack over soaring prices, said his government was taking "determined" measures to bring them under "reasonable control".

Bringing cheers to lakhs of government employees and armed forces personnel, Singh announced that government has gone "beyond" the recommendations of the Sixth Pay Commission in increasing their emoluments.

Turning to the challenges posed by communalism, extremism and fundamentalism, he said "politics of consensus, not confrontation" was required and cautioned that a divided nation cannot overcome them.

In his 45-minute speech, the Prime Minister spoke about last month's terror attack on the Indian Embassy in Kabul and said it had cast a "shadow over the efforts to normalise relations with Pakistan".

He made it clear that New Delhi will not be able to pursue peace intiatives with Islamabad if the issue of terrorism is not addressed.

Reflecting government's worries over the Amarnath land transfer row, the Prime Minister said "issues related to this sacred place, especially the issue of providing the best possible facilities to pilgrims, can only be resolved in an atmosphere of peace and goodwill.

"Dividing people in the name of religion can complicate these issues further which can also pose a threat to the unity and integrity of the country," he said, while calling for "greater unity of purpose" among political parties.

"We cannot think only for ourselves. We cannot think only about survival from day to day, from year to year and from one election to another," he said.

In his speech, the fifth in a row since he assumed office in 2004, Singh also touched on the Indo-US nuclear issue and gave an appraisal of various welfare measures initiated by his government.

Describing terrorism, extremism, communalism and fundamentalism as "major challenges to the unity and integrity of our country", he said the recent attacks in Bangalore, Ahmedabad, Jaipur and other parts of the country have shocked the nation.

Voicing firm determination of his government to deal with these challenges, he said the functioning of the police, intelligence agencies and security forces would be examined.

"We have to further strengthen our intelligence agencies and police forces to deal with the problem of terrorism," Singh said.

Terror menace

Singh made it clear that Pakistan would have to end cross-border terrorism, saying without the issue being addressed "all the good intentions that we have for our two peoples to live in peace and harmony will be negated.

"We will not be able to pursue the peace initiatives we want to take. The terrorists and those who support them are enemies of people of India and Pakistan, of friendship between the two countries and of peace in the region and the world. We must defeat them."

Singh said India was seeking a peaceful, stable and prosperous neighbourhood and its foreign policy is based on these principles. "We wish all our neighbours well."

Touching on the economic front, he said the RBI was moderating the money supply growth to control inflation. "However, while making these efforts we should avoid doing anything which hurts our growth".

"I know how much each one of you is concerned about the recent rise in prices. The inflation we have seen this year is basically due to external factors.

"All over the world and in global markets the price of food, fuel and other commodities has been rising. We are taking determined measures to bring prices under reasonable control," Singh said.

"Our economy must grow at the rate of at least 10 percent every year to get rid of poverty and generate employment for all," he said.

Singh said he has sought cooperation from the states to tackle inflation. "I have urged all Chief Ministers to improve and strengthen the Public Distribution System (PDS) to ensure availability of essential commodities to the common man at reasonable prices," he added.

He said the government has formulated a new Rehabilitation and Resettlement Policy which would ensure that there is reasonable compensation and proper rehabilitation of rural people in the process of industrial development.

Parliament's approval will be sought for it, he said.