Pakistan will release a captured Indian pilot tomorrow morning as a peace gesture, Prime Minister Imran Khan has said.
The overture towards India comes after soaring tension fuelled fears of conflict between the nuclear-armed rivals.
"As a peace gesture we are releasing the Indian pilot tomorrow," Mr Khan told the Pakistani parliament.
His comments come a day after Wing Commander Abhinandan Varthaman was shot down in a rare aerial engagement between the south Asian neighbours over the disputed region of Kashmir.
Troops from both countries traded fire briefly along the contested border this morning.
Earlier, Pakistan's foreign minister had said it would be prepared to return the pilot if it helped ease the crisis with its neighbour.
The United States, China and other world powers have urged restraint from the two nations as tension escalated following tit-for-tat airstrikes in the wake of a suicide car bombing that killed at least 40 Indian paramilitary police in Indian-controlled Kashmir on 14 February.
Events have sparked fears of India and Pakistan, who have fought two wars and countless deadly skirmishes over Kashmir, entering a cycle of retaliation and counterattacks that could spiral out of control.
Commander Varthaman, who rapidly attained hero status in his own country, has become the face of the escalating conflict, with analysts touting him as a potential trump card for Islamabad and perhaps the key to bringing the arch-rivals back from the brink.
Pakistan and India have fought three wars since independence from British colonial rule in 1947, two over Kashmir, and went to the brink of a fourth in 2002 after a Pakistani militant attack on India's parliament.
Pakistan has shut its airspace, forcing commercial airlines to reroute.
Thai Airways International announced that it had cancelled flights to Pakistan and Europe, which left thousands of passengers stranded in Bangkok.
Troops from India and Pakistan briefly exchanged fire this morning in Poonch, a district in Indian-occupied Kashmir, according to a statement from the Indian army.
India claims the incident was initiated by Pakistan and lasted for a little over an hour, but was significantly less elevated than the artillery fire exchanged by the two sides yesterday.
India is building more than 14,000 bunkers for families in Jammu and Kashmir state living close to the border, hoping to keep them safe near their homes rather than evacuate them.
Yesterday, India's foreign ministry handed a dossier to Pakistan that it claimed detailed camps of the Pakistan-based militant group that carried out the 14 February attack.
The White House urged "both sides to take immediate steps to de-escalate the situation".
US Secretary of State Mike Pompeo said in a statement he had spoken separately with the foreign ministers of India and Pakistan and urged them to "prioritise direct communication and avoid further military activity".
China, the European Union and other countries also called for restraint.
