New Delhi, May 24 (IANS): Three weeks after the thaw in Thimphu, Prime Minister Manmohan Singh Monday said the trust deficit was the "biggest problem" with Pakistan and stressed that it was important to improve relations with neighbours to realise India's develomental potential.

"Pakistan is our neighbour. It is our obligation to make every efforts to normalise relations with India's neighbours. That's essential to realise our full developmental potential," Manmohan Singh said at his National Press Conference to mark the first year of the second term of the United Progressive Alliance government.

"Trust deficit is the biggest problem. Unless we tackle that, we can't make progress. It has been my effort to reduce the gap," he said.

Manmohan Singh said trust deficit was identified as a core issue when he met his Pakistani counterpart Yousaf Raza Gilani in Bhutan last month.

"We agreed that trust deficit is a major problem blocking progress in the direction of going forward and that it should be our common endeavour to reduce the trust deficit. That's why we agreed that the foreign ministers should meet," he said.

"I am hopeful that this process can move forward. At least, that is the message that I got from talking to the Pakistan prime minister," he said while alluding to his disucssions with Gilani last month.

"We are willing to discuss all outstanding issues," Manmohan Singh replied when asked whether India and Pakistan are discussing a solution of the Kashmir issue. The prime minister, however, added that for dialogue to move forward, Pakistan should not use terror against India.

The prime minister said it was his "firm conviction" that India cannot realise its full potential unless "we have the best possible relations with our neighbours, and Pakistan happens to be our largest neighbour".

Manmohan Singh stressed that India would "make every effort" to improve ties, but the success of this effort would only become clearer in the future.

In his written opening remarks to the press conference, he noted that the recent South Asian Association for Regional Cooperation (SAARC) summit in Bhutan had once again "underlined the fact that it is not just our shared past but also our shared future that binds this sub-continent together."

"Improving relations with neighbours continues to be of great importance to us. I have often said that our real challenges are at home and in our neighbourhood," he added.

In a bid to bridge this "trust deficit", External Affairs Minister S.M. Krishna is scheduled to meet with his Pakistani counterpart Shah Mehmood Qureshi in Islamabad July 15.

India had stopped the composite dialogue process with Pakistan after the terror attack in Mumbai in November 2008 in which several Pakistani nationals were involved.