India should offer money (call it an aid package for political reasons), settlement of all water disputes and an economic pact to Pakistan in exchange for all parts of Kashmir - lets say something like $30B-$35B over the next 10 years.
India can afford it now with its strong reserves and economy. It will also save billions of $ in the reduction of armed forces at the Indo-Pak border. Once the issue is resolved, both India and Pakistan can focus on other problems.
True, politics will not allow any immediate acceptance from Pakistan. But eventually economics always wins. It will also allow Pak to reduce troops from Kashmir and focus on their western front.