Speaking at the Council on Foreign Relations here, Jaishankar said that in Pakistan, "large sections have a deep antipathy towards India".
He said that Pakistan had "slowed down regionalism" by not allowing India connectivity to Afghanistan.
"The conduct of terrorism as a legitimate instrument of statecraft is not acceptable as a norm of international relations," he said, adding that no country uses terrorism "as a large scale industry against its neighbour".
"How to talk to a neighbour that follows a policy of implausible deniability. How do you address that," he asked.
To a question on "rapprochement" with Pakistan through cricketing ties, Jaishankar said that he had helped find a home base for the Afghan cricket team and was delighted to see the Afghans doing well in cricket today.
"It is difficult in real life to separate issues if you see some of the very difficult things that have happened between India and Pakistan... We had a major attack on an airbase some years ago (Pathankot), in 2016 we had an attack on a military camp (Uri) that killed a lot of people, this year we had a suicide attack that killed a lot of security personnel (Pulwama).
"If the dominant narrative of a relationship is terrorism, suicide bombings and violence, and then you say 'okay guys tea break' let's play cricket... It is a hard narrative to sell to people. And in a democracy, the sentiments of people do matter. You can't do terrorism by night and say it is business as usual by day," he said.
To a question whether India and Pakistan were "permanent enemies", Jaishankar said that "no neighbour can give up on a neighbour".
"Pakistan needs to change their position (on terror as an instrument of statecraft), not for us, but for itself. I used to be concerned about Pakistan, and still am, but now I am concerned for Pakistan. Their own self-interest mandates that they take a different tack," he said.
On the "thought process" behind the August 5 abrogation of special status to Jammu and Kashmir, Jaishankar said there were a number of consequences due to Articles 370 and 35A, as Kashmir did not have economic activity, there were fewer jobs or job opportunities, which led to frustration, and a climate of separatism was fanned from across the border.
The progressive legislations of India did not apply to Jammu and Kashmir, and the right to work, education, information or affirmative action, and the law for representation of women in legislative bodies, juvenile protection laws were not applicable there.
He said the economic and social impact of Articles 370 and 35A led to political consequences, and allowed a "narrow elite to arbitrage Article 370 and create closed loop politics", who had vested interests in keeping the separatist politics alive. There were separatist groups aligning with Pakistan.
The External Affairs Minister went on to say that the government did a review, and had two choices before it. One was a set of policies that were "visibly not working" with 42,000 people killed, the "level of intimidation had reached a height" where a senior police official was lynched, police and army officials returning home for Eid were killed by militants and journalists who wrote against separatists were assassinated.
"Pre August 5, please remember this situation was in a mess. The difficulties did not start after August 5," he said.
The choice was either to continue with what was not working or do something new, and the decision was to try something very different.
He said the government realised that it will not be easy to bring economic and social changes in Kashmir "as there are deep vested interests that will resist" and that terrorists would use the situation to their benefit.
The government wants to manage the situation without loss of lives, he said.
"The primary concern of the government is to prevent loss of life. And if we put temporary suspension of the internet on one side, and loss of life on the other, I know what side I would pick," Jaishankar said.
He also enumerated that landlines are being restored in the Valley, mobile towers are being switched on, schools are open, and economic activity has picked up.
( With inputs from IANS )