Hijackers of the Indian Airlines aircraft on December 29 dropped their demands for the ransom of 200 million US dollars and the return of the body of a militant Sajjad Afghani.

This was disclosed by senior Indian diplomat at Kandahar, Afghanistan who took part in the talks with the hijackers, according to PTI.

However, the hijackers continued to press for the release of 36 hard-core militants jailed in India, he added.

"Things are moving inch by inch but it is good. We are trying our best," a senior Indian official said on condition of anonymity.

The hijackers dropped their two demands apparently after the Indian government conveyed its "appropriate response" to them on the stiff conditions they had imposed yesterday.

They demanded release of 35 other hard-core jailed militants besides Maulana Masood Azhar and 200 million US dollars for the release of 154 hostages.

They also demanded that the body of Harkat-ul Ansar chief in Jammu and Kashmir Sajjad Afghani be exhumed and the coffin be handed over to them.

Afghani, who was arrested along with Azhar in February 1994, was killed when Pakistani mercenaries made an abortive bid to escape from Kot Balwal jail in Jammu.

Earlier Wednesday, a cabinet meeting chaired by Prime Minister Atal Bihari Vajpayee reviewed the situation for about an hour.