Calling for stronger Indo-US ties to combat terrorism and other threats, Chidambaram stressed on the need for a "stable, peaceful and prosperous neighbourhood" for the security of the people of India.
"It is a truism to say that India lives in perhaps the most difficult neighbourhood in the world. The global epicentre of terrorism is in our immediate western neighbourhood," he said.
"The vast infrastructure of terrorism in Pakistan has for long flourished as an instrument of state policy," he said in his opening remarks at India-US Homeland Security Dialogue being held here.
Terming terrorism as the "principal challenge" for both the countries, the Home Minister advocated the need to deal with a range of other challenges, including counterfeit currency, narcotics trafficking, threats and risks in cyber space.
"Today, different terrorist groups, operating from the safe havens in Pakistan, are becoming increasingly fused. The society in Pakistan has become increasingly radicalised. Its economy has weakened and the state structure in Pakistan has become fragile.
"Given the complexity of our region, our Government has a comprehensive neighbourhood strategy that is based on political engagement, especially with Pakistan, support for political stability, assistance for economic development and improved connectivity and market access for our neighbours to the Indian economy," Chidambaram said.
"A stable, peaceful and prosperous neighbourhood is vital for the security of the people of India," he said.