"We are seeking to improve relations with all countries in the region. The prime minister has already given the guideline. The goal of prosperity and development will not succeed without regional peace," Zardari said in his address to a joint session of both houses of parliament.
Zardari, who became the first President to address a joint session of parliament for a sixth time, said Pakistan wants to improve relations with India.
His speech came four days after newly elected Prime Minister Nawaz Sharif vowed to "progressively pursue" normalcy in ties with India while actively seeking solutions to outstanding issues, including Kashmir.
"Steps have been taken to liberalise trade with India. We want a peaceful settlement of the water issue," he said.
"We seek a peaceful resolution of the Jammu and Kashmir issue, in accordance with the wishes of the Kashmiri people. We do not want an arms race in the region," he told members of the Senate and the National Assembly, including Sharif.
Asserting that Pakistan will not allow its soil to be used for terrorism directed against any other country, Zardari called for a two-pronged approach combining dialogue and the use of force to tackle militancy and terrorism.
"The government will not allow the use of our soil for terrorist activities against any other country. We will also not allow anyone to violate our sovereignty. The sovereignty of Pakistan must be protected at all costs," he said as lawmakers, including Sharif, thumped their desks.
Describing militancy, extremism and terrorism as the "greatest threat" to Pakistan's national security, he said: "The nation is united against militancy. We need strong leadership to overcome the threat.
"We are ready to make peace with those willing to give up violence. But we should also be ready to use force against those who challenge the writ of the state".
The government will also undertake the economic development of militancy-hit areas.
Pakistan is "determined to root out militancy" but the menace is "not an issue of any single country", Zardari said.
"Militancy threatens all countries in the region and indeed the whole world. It calls for sincere and collective efforts of all. We can fight militancy better through dialogue and cooperation rather than doubting each other," he said.
Pakistan values its partnerships with the US and Europe but America's drone campaign in the country's tribal belt is a "serious violation of sovereignty and international law", Zardari said.
He added: "They are also counterproductive and are not acceptable".
Prime Minister Sharif has spoken out against US drone strikes several times after assuming office last week.
The top US diplomat in Pakistan was summoned to the Foreign Office on Sharif's instructions for a formal protest against the latest attack by a CIA-operated spy plane that killed seven persons in North Waziristan.
Zardari said relations with the US and Europe need to be further strengthened on the "basis of mutual trust, mutual benefit and respect for sovereignty".
Describing Pakistan's relationship with China as a cornerstone of the country's foreign policy, Zardari said these ties would not be affected by internal political changes.
Pakistan also looked forward to peace and stability in Afghanistan and wished success to the Afghan-led reconciliation and reconstruction process, he said.
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