The Indian Army on Monday evening called off the seven-day long operation at Ghatti area in Kathua district of Jammu.
A senior police officer told rediff.com that the seven militants hiding in the dense forests managed to escape.
The army units were also withdrawn.
This was the longest ever engagement between the militants and the security forces during 14 years of militancy in the state.
Villagers in the adjoining Kishenpore and Jackhole villages sighted the seven militants moving, sources said.
One policeman died and ten were wounded in the initial two days of heavy fighting.
As the firing exchanges intensified, the army was deployed and the Jammu and Kashmir Police withdrawn.
The army had even pressed helicopters into service to trace the militants.