Sharif said he is committed to a "serious sustained and constructive engagement" with India that must include the issue of Jammu and Kashmir.
Describing the recent tension at the LoC as matter of concern, he said Pakistan will respond to the situation with "restraint and responsibility".
In an interview to a Turkish media network, Sharif said his government is pursuing a foreign policy of forging stable and cooperative relations with all countries, especially neighbouring countries.
"For the effective pursuit of our socio-economic agenda, good relations with all our neighbours are essential and a priority for my government," Sharif, currently in Turkey on a three-day official visit, was quoted as saying by the Nation.
"I have always given high priority to good relations with India for the sake of durable peace in the region. We are keen to have a comprehensive dialogue with India for the resolution of all issues including the issue of Jammu and Kashmir," Sharif added.
The Prime Minister said he started this process when the then Indian prime minister Atal Bihari Vajpayee visited Lahore in 1999 and the two sides were very close to finding a negotiated settlement to the Kashmir dispute.
State-run Radio Pakistan quoted Sharif as saying that the recent tension along the Line of Control are a matter of concern but Pakistan will "continue to respond to the situation with restraint and responsibility".
"He renewed Pakistan's commitment to a serious' sustained and constructive engagement with India that must include the core issue of Jammu and Kashmir," the report said.
On the issue of negotiations with the Pakistani Taliban, Sharif said his government is ready to hold dialogue with those who are ready to shun extremism.
Sharif said that the government has more than one option to deal with terrorists' but shall use force only as a last option to avoid further loss of innocent lives.
The Prime Minister said that the menace of terrorism in the region "is the outcome of wrong policies in the past".
He said Pakistan needs the cooperation and support of international community and neighbours for controlling funding' supply of arms and training to the terror networks.
Sharif said the US strategy of using drone strikes in Pakistan against terrorists not only violate the country's sovereignty and international law but are also counter- productive and causes further radicalisation in the society.
He said these strikes "undermine our collective efforts to counter extremism and terrorism". He hoped that there is a rethink in the US about the utility of the drone strikes.
Sharif said that peace and stability in Afghanistan is directly linked with peace and stability in Pakistan. He said that his government would continue to extend sincere support for the peace and reconciliation process in Afghanistan.