The government on Monday night decided to resume the Delhi-Lahore bus service and release 130 Pakistani civilians languishing in Indian jails.
India had snapped the service after the December 13, 2001, terrorist attack on its Parliament.
The service, started soon after Prime Minister Atal Bihari Vajpayee's historic bus journey to Lahore in February 1999, will resume as soon as details by the technical authorities of the two countries are worked out, an external affairs ministry statement said.
The Pakistani prisoners will be released as soon as their government is ready to receive them, it said.
As part of confidence building measures, Pakistan recently released 20 Indians held in its jails.
The announcement came a day before Vajpayee's visit to Germany, St Petersburg (Russia) and France, during which he will meet several world leaders, including US President George W Bush, Chinese President Hu Jintao and British Premier Tony Blair.
During his weeklong trip, Vajpayee will tell them about the steps taken by India to improve ties with Pakistan and the need for that country to end cross-border terrorism.