Update: Prime Minister Manmohan Singh and Pakistani Permier Yousuf Raza Gilani hold "very good talks" in a "free and frank" manner, says Foreign Secretary Nirupama Rao. Singh expressed India's concern over the "slow progress" of Mumbai trial in Pakistan to Gilani, says Rao.

Previous report:

Prime Minister Manmohan Singh today met his Pakistani counterpart Yousuf Raza Gilani for the first substantive dialogue in nine months during which he is understood to have conveyed India's deep disappointment over Islamabad's inaction to punish perpetrators of Mumbai attacks.

Singh and Gilani met in this picturesque Bhutanese capital on the margins of the 16th SAARC Summit, their first meeting after their controversial engagement in Sharm-el- Sheikh in Egypt in July last year.

Before beginning their meeting, which began almost 40 minutes later than the originally scheduled time, Singh and Gilani shook hands and greeted each other warmly.

Ahead of their today's meeting, 77-year-old Singh and 57-year old Gilani had shook hands twice yesterday during the opening day of the Summit and took a stroll together at the insistence of other leaders.

During the meeting today, Singh is believed to have conveyed to Gilani India's strong demand for action by Pakistan against the perpetrators of the Mumbai attack.

India had suspended the Composite Dialogue process after the Mumbai attacks and has linked its resumption to action against terror.

The Prime Minister is also understood to have sought an on Pakistan's investigation and trial in the Mumbai attacks case in that country, sources said.

While the Indian delegation consisted of External Affairs Minister S M Krishna, National Security Adviser Shivshankar Menon and Foreign Secretary Nirupama Rao, the Pakistani delegation included Foreign Minister Shah Mehmood Qureshi and Foreign Secretary Salman Bashir and others.

All eyes were on the meeting, the first bilateral engagement between the two Prime Ministers since they met in Sharm-el Sheikh on July 16, 2009. The Joint Statement issued after the meeting had triggered a major controversy in India over reference to "threats" in Balochistan, where Pakistan has been alleging Indian hand in terror incidents.

The statement also appeared to delink the composite dialogue process from action on terrorism by Pakistan. India had suspended the composite dialogue process after the Mumbai attacks. .

The Indian side is believed to have focused on the "core" concern of cross-border terrorism and highlighted its unhappiness over Pakistan having not done enough on this front.

Singh is understood to have pointed out that the threat of terrorism emanating from Pakistan continues to loom and Pakistan had not taken any concrete steps to eradicate this to create conditions for resumption of substantive dialogue.

Pakistan has arrested seven of those accused in the Mumbai terror strikes but Singh had publicly expressed his displeasure on the mastermind of attacks against India like JuD chief Hafiz Saeed -- still roaming freely in Pakistan.

The Prime Minister is also understood to have raised Hafiz Saeed issue with Gilani.

The two leaders also had two brief encounters earlier this month in Washington where both the Prime Ministers were to attend the Nuclear Security Summit. On both occasions there were handshakes and pleasantries exchanged.

Pakistan had earlier this week stated that the dossiers handed over by India during the Foreign Secretary level talks in New Delhi on February 25 did not contain any evidence to book Saeed.

The Pakistani side is also believed to raised the issue of water-sharing. Pakistan has been alleging that India was violating the Indus Water Treaty of 1960 by building a power project on Kishanganga river in Jammu and Kashmir, a contention rejected by India.