Jaitley, who undertook a visit to a Rampur sector of the Line of Control (LoC) in Kashmir, said the Indian Army is fully prepared to foil any form of infiltration bid.
He also asserted that there will be no differentiation between local and foreign militants and anybody indulging in violence will be dealt with accordingly.
On recurring protests in Kashmir, he said sentiments can be addressed when there is a peaceful atmosphere.
"I visited the LoC, interacted with officials and jawans there. I complement the Indian Army for its level of preparedness and enthusiasm," he said.
In response to a question, Jaitley said, "With an average citizen, irrespective of his political views, we would like him to be on the Indian side in this debate. But as far as those who are killing people we cannot extend the same facility to them. They have to be treated as a serious insurgency problem and dealt with accordingly."
"The effect of their actions is that besides security personnel, it is the local citizens who are losing their lives. Therefore, those who are indulging in violence of this magnitude are certainly to be held accountable for their actions," he said.
In response to a question on widespread protests and sentiments in Kashmir, Jaitley said the sentiments can be addressed when there is peaceful atmosphere.
"At the end of the day, the current situation emerges when you take to arms and start killing security forces then you get in a cycle which doesn't stop.
Jaitley, who is also the Union Finance Minister, said the resources which are meant for economic development, are today being used esentially for security. "Who is to be blamed for unleasing this era of violence?"
On the Centre's refusal to engage with separatists in Jammu and Kashmir, Jaitley said "our priority is to restore normalcy, particularly in south Kashmir".
Commenting on the sting operation carried out by a private TV channel on how separatists are being funded by Pakistan to stoke trouble in Kashmir, the defence minister said the expose has confirmed what was already known in informed circles.
"So their actions were the conspiracy against not only against the Indian state but also the average resident of Kashmir valley.
This was all being talked about and what your report has done is to almost bring out a confessional statement of the concerned players accepting it," he said.
Jaitley said the concerned agency and the government will take whatever action is needed in this regard.
"Let us not forget that the army is a responsbile institution and the Army was also interested in saving the lives of various people who were involved both in election process and also the large crowd of protesters who had gathered there," he said.
On the China-Pakistan Economic Corridor, Jaitley said while economic development of Jammu and Kashmir is certainly a priority of the government, there should be no envy felt on what is happening on other side of the border.
There are examples in the history where people had entered in the name of connectivity, then establish a strategic presence," he added.
On the issue of return of NHPC-run power projects to the state and opening of more cross-LoC routes, Jaitley said the state government and the concerned union ministries must be interacting over these issues.
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