Until Tuesday, this was a prosperous village of brick and cement houses. Women and girls worked looms in shady yards, weaving carpets for export. Men tended apple orchards, rice paddies and plump milk cows.

Today Khargam is a heap of charred rubble, silent except for the sound of women wailing. Outside, families squat among their ruined possessions: scraps of flowered carpeting, piles of blackened cooking pots. Inside their sheds lie the corpses of incinerated cows.

According to authorities, the annihilation of Khargam was the consequence of "cross-fire" between Muslim separatist guerrillas and Indian security forces. According to villagers, it was an act of vengeance by army and police who sealed off the village, found and shot two guerrillas, torched the community with kerosene and kept watch while it burned for hours.

The incident was not the first of its kind in Kashmir, a scenic but heavily militarized region that is the subject of a decades-old dispute between India and Pakistan and the site of a long-smoldering guerrilla conflict that has caused some 700,000 Indian troops to be stationed here. But it was an especially gruesome example of how the latest flare-up of tensions over the region -- a three-week battle in the Kargil mountains 100 miles east of here on the Line of Control separating Indian- and Pakistani-occupied Kashmir -- has revived an array of regional problems that most Kashmiris hoped they were finally putting behind them.

This spring, after a decade of political violence and economic devastation, India's portion of Kashmir -- the Muslim-majority state of Jammu and Kashmir -- seemed to be coming back to life. Between March and May, more than 100,000 tourists poured into the region. Officials felt increasingly confident that they had brought the insurgency by Muslim militants under control, and shops that had been closed for a decade reopened for business.

But since fighting broke out in Kargil on May 26, the effects have been felt here, as well. The tourists have vanished, the shops have emptied, and tensions have suddenly surged between scattered pockets of guerrillas and the security forces who blanket the region, manning sandbagged bunkers on every major corner in Srinagar, the state's lakeside summer capital, and patrolling every mile of highway in the surrounding Kashmir Valley.

Only three weeks ago, visitors filled the quaint wooden houseboats along Dal Lake, shopped for silk shawls and carpets and set off for romantic rides in brightly painted gondolas called shikaras. Now, hundreds of shikaras wait all day at the lakefront piers for customers, and houseboats with alluring names like Lotus, Floating Castle and Switzerland have "vacant" signs on their balconies.

"It was sort of like a dream. For a few weeks, after nine or 10 years, we suddenly had heaps of tourists; some of them couldn't even find rooms. Then Kargil came and suddenly they were gone again," said Abdul Samid Kotroo, 85, who heads a houseboat owners' association. "For a little while I thought Almighty God had forgiven us for our sins, but now I don't know. We must pray for him to restore peace, or no tourists will come."

In the Sonamarg Valley, visitors on pony treks into the Himalayan foothills have been replaced by hundreds of military trucks that rumble along the highway toward Kargil, carrying fresh troops, supplies and weapons. More than 40,000 troops have been mustered to drive out a few hundred insurgents who crossed the mountains from Pakistan and now occupy strategic ridges along the border.

While draining Kashmir of tourists, the border war has brought a human flood of a different kind: refugees. Tens of thousands of people have been evacuated from mountain towns in the conflict zone, such as Kargil and Dras, and shipped in army trucks to safer areas. But many of them are anxious, overcrowded and uncomfortable in their temporary shelters.

In one village near Sonamarg, 350 refugees from the Dras area are crammed into five cinder block bungalows built for a public works project. They complained that each family had been given only 11 pounds of rice, and that the army had forced a number of young men from their town to carry supplies and ammunition in the mountains without pay.

The most troubling impact of the border conflict on Kashmir, however, is the apparent heightening of tensions between Indian security forces and Muslim insurgents, which has led to a series of violent confrontations and at least two village-torching incidents in the past several weeks.

According to military and civilian authorities, the armed Islamic rebel movement that erupted here in 1989, demanding largely Muslim Kashmir's independence from Hindu-dominated India, has been gradually quashed by Indian troops. Today, they say, a home-grown insurgency that once enjoyed substantial public support is now a small, furtive force of foreigners backed by Pakistan.

But security in Kashmir has hardly relaxed; the region resembles an armed camp. Houses and hotels have been turned into barracks. After dark, vehicles are stopped at roadblocks; at the airport, luggage and passengers are searched half a dozen times.

In some neighborhoods, soldiers joked and mingled easily with Kashmiris. But in random interviews in shops and parks, many residents expressed deep bitterness toward the Indian forces, and a surprising number said they still harbored hopes that Kashmir could win its independence from India. At the same time, most said they preferred a peaceful settlement to conflict and hoped India would not go to war with Pakistan.

"We live in an occupied land. The only reason people are quiet is because of all the guns here," said Bashir Ramat, 49, a cabinetmaker who still keeps two smashed watches and a bloody handkerchief from a Muslim funeral march in 1990 that ended with police killing 67 marchers. "If they dared to take away the security forces for one day, they would see what the people think."

Since the Kargil conflict began, moreover, Kashmiri newspapers have reported a rash of shootings by suspected militants -- and an apparent retaliatory crackdown by security forces. This week, witnesses said both Khargam and a village called Nathpora were set afire by Indian forces after armed clashes with several guerrillas. Journalists who visited Nathpora said 50 houses, cowsheds and other structures were destroyed. At least eight people were killed in the two villages.

Regional authorities said both burnings were the result of cross-fire, but that the incidents would be investigated. And several officials insisted that Pakistan was to blame for encouraging violence inside Kashmir as well as for starting the current border conflict.

"We are facing a proxy war; the massive export of terror across the border," said Giri Saxena, the appointed state governor. "Sometimes there are excesses or overreactions, but the rapport between local people and the army is very good. People are afraid of terrorists, not security forces."

Two journalists who attempted to visit Nathpora were stopped by police, but they spent several hours Thursday in Khargam, where villagers described how troops had come looking for "militants" and killed two in a shootout. Then, they said, the soldiers poured kerosene on the village and set it afire without allowing anyone to rescue animals or belongings.

Residents insisted they had not helped any guerrillas, but a number of them said the attack had increased their sympathy for the rebels and their anger toward the Indian forces.

"They want to say to us, `If you help the militants, we will do the same thing to each and every person, in each and every house, in each and every village,' " said Abdul Majid, 28, a teacher. "But now, each and every person has a new hatred in their heart."

CAPTION: A family sits outside its destroyed house in Khargam in Kashmir. Residents say the village was burned by Indian troops as part of a three-week battle against Pakistani-backed rebels.