BTW, I think that any local region has the right to choose their fealty. Just as I beleive the states in America have the right to seceed if they so choose, if Kashmire wants to be a part of Pakistan then India ought to let it go.
That's my first instinct though I admit I'm not terribly well informed on the situation as a whole.
Kashmir is of strategic importance. As long as India occupies it, it blocks easy communications between Pakistan and its Chinese ally. A Pakistani Kashmir renders China a much more significant military threat to India.