The report said India continues to experience attacks by 'Pakistan-based terrorists'.
The United States on Wednesday listed Pakistan among the nations and regions providing 'safe havens' to terrorists, saying terror groups like the Lashkar-e-Tayiba and Jaish-e-Mohammed continued to operate, train, organise and fundraise inside the country.
In its annual 'Country Report on Terrorism', as mandated by the Congress, the State Department said that Mumbai attack
mastermind and United Nations-designated terrorist Hafiz Saeed continued to address large rallies, although in February 2017 Pakistan proscribed him under relevant provisions of Anti-Terrorism Act.
'Although LeT is banned in Pakistan, LeT's wings Jamaat-ud-Dawa and Falah-i-Insaniat Foundation were able to openly engage in fundraising, including in the capital,' it said.
'LeT's chief Saeed continued to address large rallies, although in February 2017, Pakistan proscribed him under relevant provisions of Schedule Four of the Anti-Terrorism Act, thus severely restricting his freedom of movement,' it noted.
The 2015 ban on media coverage of Saeed, JuD, and FiF continued and was generally followed by broadcast and print media, it said.
It said Pakistan did not take substantial action against the Afghan Taliban or Haqqani, or substantially limit their ability to threaten US interests in Afghanistan, although Pakistan supported efforts to bring both groups into an Afghan-led peace process.
'Pakistan did not take sufficient action against other externally focused groups, such as Lashkar-e-Taiba (LeT) and Jaish-e-Mohammad (JeM) in 2016, which continued to operate, train, organise, and fundraise in Pakistan,' the report said.
India, it said continued to experience attacks, 'including by Maoist insurgents and Pakistan-based terrorists'.
Indian authorities continued to blame Pakistan for cross-border attacks in Jammu and Kashmir, it said.
'In January, India experienced a terrorist attack against an Indian military facility in Pathankot, Punjab, which was blamed by authorities on JeM. Over the course of 2016, the government of India sought to deepen counterterrorism cooperation and information sharing with the United States,' the State Department said.
The Indian government continued to closely monitor the domestic threat from transnational terrorist groups like Islamic State and Al Qaeda in the Indian Subcontinent (AQIS), which made threats against India in their terrorist propaganda. A number of individuals were arrested for IS-affiliated recruitment and attack plotting within India, the report said.
In a separate chapter, the State Department listed Pakistan as one of the safe havens of terrorism.
The State Department said that numerous terrorist groups, including the Haqqani Network (HQN), the LeT and JeM continued to operate from Pakistani soil in 2016.
According to the State Department, the Pakistani government did not publicly reverse its December 2015 declaration that neither JuD nor FiF is banned in Pakistan, despite their listing under UN sanctions regimes, although in January 2017, Pakistan placed both organisations 'under observation' pursuant to Schedule Two of the Anti-Terrorism Act.
While not a ban, keeping the outfits under observation allows the government to closely scrutinise the activities of both organisations.
On November 11, Pakistan's National Counter-terrorism Authority published its own list of banned organisations that placed JuD in a separate section for groups that are 'under observation' but not banned.
Pakistan continued military operations to eradicate terrorist safe havens in the Federally Administered Tribal Areas, although their impact on all terrorist groups was uneven, it said.
In its report to the Congress, the State Department said in 2016, India and the United States pledged to strengthen cooperation against terrorist threats from groups including Al Qaeda, the ISIS, JeM, LeT and D-Company (Dawood Ibrahim's group), including through greater collaboration on designations at the UN.
Indian and US leaders directed officials to identify new areas of collaboration through the July US-India Counterterrorism Joint Working Group, applauded finalisation of a bilateral arrangement to facilitate the sharing of terrorism screening information, and called upon Pakistan to bring the perpetrators of terrorist attacks against India to justice, the report said.
The United States and India worked together to designate JeM leader Maulana Masood Azhar, although the listing was blocked in the UN 1267 Committee, the State Department said.
Other areas mentioned in the report as safe havens are Afghanistan, Somalia, the Trans-Sahara, Sulu/Sulawesi Seas Littoral, Southern Philippines, Egypt, Iraq, Lebanon, Libya, Yemen, Columbia and Venezuela.
Meanwhile, sources in New Delhi said that the US listing of Pakistan among the nations and regions providing safe havens to terrorists is a 'vindication' of India's long-standing position on the menace of cross-border terrorism in its region.
