ISLAMABAD, Pakistan (AP) – Nuclear-armed rivals India and Pakistan say they want to bury five decades of hostility, yet their arms race is accelerating, with ballistic missile tests continuing and defense spending rising.

The two countries’ foreign ministers will meet in New Delhi on Sunday to review the progress of peace talks that have eased fears of conflagration – but not translated into a development dividend for the 400 million people on the subcontinent still stuck in poverty.

“They (India and Pakistan) are not yet convinced they are going to reach a durable peace with each other,” said a Western diplomat in Islamabad.

Since Pakistan’s President Gen. Pervez Musharraf and then-Indian Prime Minister Atal Bihari Vajpayee kickstarted the peace process in January, India has hiked defense spending by 27 percent, and Pakistan by 7 percent – justified by both governments as necessary costs in the drive for military modernization.

While they have agreed in principle to move toward “strategic restraint,” they have also been honing their ability to fire missiles deep into each other’s territory – and consolidating their status as de facto nuclear powers.

“Neither side is looking at arms reduction. What are they looking at nuclear stability,” said C. Raja Mohan, a professor of international relations at Jawaharlal University in the Indian capital.

Last week, India test-fired its nuclear-capable Agni II missile, with a range of 1,560 miles, and announced it would start production of a supersonic cruise missile for use by its navy in 2005.

Pakistan, which prizes its nuclear deterrent as a way of countering the imbalance of India’s much larger conventional forces, has conducted at least three ballistic missile tests since March.

It has tested its new, nuclear-capable Shaheen II with a range of 1,250 miles. Musharraf has also promised another test soon – expected to be the Ghauri III, Pakistan’s longest-range missile, able to reach up to 2,175 miles.

Analysts say the escalation does not necessarily hurt the peace process – although it does reflect enduring mutual suspicion, and India’s ambition to be a global power capable not just of handling the threat from old rival Pakistan but competing strategically with Asia’s emerging powerhouse, China.

“I am not too worried about missile tests if they have confidence-building measures in place,” said Uday Bhaskar of the Indian-government backed Institute for Defense Studies and Analyses.

Pakistan and India have reaffirmed their moratorium on conducting more nuclear tests – after each held its first in 1998. They are also informing each other in advance of missile tests and have agreed to set up a nuclear hot line between their foreign secretaries.

Both armies are also sticking to a cease-fire that has stopped artillery fights across the military line dividing Kashmir, where they massed hundreds of thousands of troops during their last standoff in 2002.

The disputed Himalayan territory has been at the center of two of their three wars since independence from Britain in 1947.

Negotiators have yet to seriously tackle that dispute, which could yet stall the peace process. At least until Kashmir is addressed, both governments will be loath to risk the domestic flak from a rollback in defense spending.

Talat Masood, a former senior Pakistani defense official, said India appeared set to maintain its current defense spending for at least four or five years as it embarks on a modernization of its military. Pakistan – which has always struggled to compete with fewer resources – was trying to keep up “in a minimum sense,” he said.

Masood noted that the 27 percent rise in the Indian defense budget was equivalent to Pakistan’s entire military spending.

India budgeted $16.8 billion for defense for the 2004-2005 fiscal year, 16 percent of total government spending, against Pakistan’s $3.4 billion, which accounts for 21.7 percent of its total budget.

The galloping defense expenditures rile peace advocates, who point to the abject poverty suffered by at least a third of the population in both countries despite current economic growth of around 6 percent.

“Every penny spent on defense is a crime as it ignores the poverty of the people,” said A.H. Nayyar, president of the nongovernment Pakistan Peace Coalition, formed after the 1998 nuclear tests.

“I’m aghast when I see the living conditions in Pakistan, and when I traveled to India I was equally aghast, despite the billboards that told me India was shining.”