Once again, however, Jinnah failed to explore all the options open to him. One possibility was to make compromises over another Princely State, Hyderabad. The Muslim ruler or nizam of Hyderabad faced the same dilemma as Maharaja Hari Singh. He wanted independence but was far from sure he could achieve it. Jinnah understood that it was never realistic to expect the nizam to accede to Pakistan: Hyderabad was entirely surrounded by Indian territory. But he always hoped that the nizam could pull off independence. He considered Hyderabad to be the 'oldest Muslim dynasty in India' and hoped that its continued existence as an independent state right in the heart of India would provide a sense of security for those Muslims who didn't move to Pakistan. Once again, however, Jinnah was thinking in terms of legally possible options rather than political realities. In the long term the independence of Hyderabad, while constitutionally proper, was never going to happen. The new Indian leadership saw the issue clearly enough and when the nizam tried to strike a deal which would allow him to hang on to some degree of autonomy, Delhi flatly refused to consider the idea.SOURCE: Pakistan: Eye of the Storm, 2nd ed., by Owen Bennett Jones (Yale Nota Bene, 2002), pp. 68-69
In retrospect most Pakistanis would agree that it would have been worth abandoning the aspiration for an independent Hyderabad if it had meant securing Kashmir's accession to Pakistan. Furthermore, Jinnah had good reason to believe that such a deal could have been struck. In late November 1947 Nehru and Liaquat Ali Khan met to discuss the situation in Kashmir. To understand their conversation it is first necessary to consider briefly what had happened in yet another Princely State, Junagadh.
The Muslim nawab of Junagadh ruled over a million people, 80 per cent of them Hindus. Junagadh was located in western India and, even though it was not strictly contiguous with Pakistan, its coastline offered the possibility of sea links to the Muslim state that was just 200 miles away. The nawab of Junagadh, guided by his pro-Pakistani chief minister Sir Shah Nawaz Bhutto (the father of Zulfikar Ali Bhutto), decided to ignore the feelings of his Hindu population and acceded to Pakistan. It was the mirror image of the situation in Kashmir. The Indian government did not accept the decision, blockaded Junagadh and then invaded it. Delhi then imposed a plebiscite and secured the result it desired: Junagadh became part of India.
When Liaquat Ali Khan met Nehru at the end of November he exposed the illogicality of India's position. If Junagadh, despite its Muslim rulers' accession to Pakistan, belonged to India because of its Hindu majority, then Kashmir surely belonged to Pakistan. When Liaquat Ali Kahn made this incontrovertible point his Indian interlocutor, Sardar Patel, could not contain himself and burst out: 'Why do you compare Junagadh with Kashmir? Talk of Hyderabad and Kashmir and we could reach agreement.' Patel was not alone in this view. On 29 October 1947 officials at the American embassy in Delhi had told the US State Department: 'the obvious solution is for the government leaders in Pakistan and India to agree ... [to the] accession of Kashmir to Pakistan and the accession of Hyderabad and Junagadh to India'. British officials in London concurred.
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Embassy in Hyderabad