The row of sand-colored military apartments bore fresh scars of what Indian officials described as a fierce firefight with several Islamic terrorists: jagged holes blasted in the walls, shards of glass strewn on the floors, roofs blackened and gaping open.

When it was over, officials said, two gunmen either had been shot dead or blasted to bits; a senior officer, two soldiers and a woman lay dead; and 12 hostages had been rescued unharmed in this Kashmir Valley village after a dawn raid by a special commando force flown in from New Delhi.

The July 13 bloodshed came just as tensions seemed to be easing in Kashmir -- a week earlier, Pakistan had agreed to withdraw support for Islamic fighters occupying the mountainous Kargil region along the line of control dividing India and Pakistan. But the brazen attack in this valley village 80 miles southwest of Kargil raised new fears that insurgents were making good on threats to open a second front.

Indian officials called it "the most audacious attack in years" in the valley and declared that the "humiliation" and "frustration" suffered by Muslim guerrillas when Pakistan cut off its support in the border fight at Kargil was driving them to desperate new attacks outside the highlands battle zone. An armed Islamic group based in Pakistan did claim responsibility for the incident.

In all, some 20 Hindus, including members of civilian defense patrols, have been gunned down recently in Jammu and Kashmir, the only predominantly Muslim state in overwhelmingly Hindu India. Many Muslims here in the valley still secretly support efforts by Islamic militant groups to shed Indian control. And while their campaign has been subdued over the past decade, some people harbor hopes that the recent fighting in the highlands will breathe new life into the cause.

Others, however, are worried that instead of drawing attention to their 52-year struggle for independence, the fighting in the Kargil highlands has been settled without their concerns being taken into account. A new wave of attacks in the valley, they fear, may prevent any discussion of Kashmir's future while provoking a fresh round of rebel sabotage and state repression.

"Instead of being treated as an offshoot of the Kashmir dispute, Kargil itself became the dispute," complained Abdul Ghani Lone, a leader of the All Party Hurriyet Conference, a major opposition group here. "Now Kargil is safe, but there are many more headaches in store for India."

For years, many inhabitants of this spectacularly beautiful but perennially troubled region have clung to their dream of azadi, or freedom. When Britain granted independence to India and Pakistan in 1947, largely Muslim Kashmir became part of India because the area's preindependence ruler was a Hindu. The two new nations went to war almost immediately, and a 1949 truce put northern Kashmir under Pakistani control and left southern Kashmir held by India.

A U.N. resolution the previous year called for a plebiscite on self-determination in both sections, but India never allowed it to occur. After a peaceful independence movement failed to bear fruit for decades, a violent uprising broke out in 1989 in Srinagar and the surrounding Kashmir Valley.

The insurgency was composed mostly of young Kashmiris, but it was spurred and manipulated by Pakistani security agencies, whose chief goal was the takeover of southern Kashmir. The movement was also joined by radical Muslim guerrillas from Pakistan and Afghanistan who had yet another aim: the spread of radical Islam.

Indian security forces gradually crushed the rebellion, but not before years of bombings, sabotage attacks and military raids left more than 20,000 people dead. Today, security officials insist the militant movement is virtually eradicated but that Pakistan and its "proxy" army of Islamic groups are still trying to exploit the Kashmir cause for their own ends.

"The local people have practically given up the violent struggle, but Pakistan wanted to make a symbolic gesture . . . to give a fillip to a dying terrorist movement," a senior police official said. After the Kargil incursion began in late April, he said, "they hoped there would be a mass upsurge of emotion and support in the valley, but there has been no reaction at all.

"There is no Kashmir problem," he added. "The problem is Pakistan."

Many Kashmiris are suspicious of the Kargil invaders and their Pakistani backers, and some separatists worry that once again their movement has been exploited by forces with other, larger agendas. India says the Pakistani-based fighters were largely Pakistani troops; Pakistan says they were autonomous freedom fighters.

"We don't know who the people were who were fighting in Kargil. They are outsiders, which means they are fighting for themselves, not for azadi. It was just a slogan," said Sanaulah Bhat, a newspaper publisher. "Can India and Pakistan come close again now? I doubt it. Now I think it will be another half-century before the Kashmir issue is resolved."

One recent evening in Bandipura, several hundred residents gathered in the town cemetery as darkness fell. Several men dug a grave while others fanned flies from a burned, blackened corpse covered by a white sheet. The villagers said the dead man supposedly was one of the hostage takers killed in the July 13 commando raid, but that he was actually a prisoner who had died in Indian custody.

"You see what happens in our democracy? This is what they do to people who only demand freedom," protested Gullah Mohammed, a white-bearded shopkeeper who was saying a prayer for the dead stranger. "We don't want Pakistan. We don't want fundamentalism. We just want azadi."