By employing the analogy-making approach, this paper seeks to examine the psycho-dynamics behind the traditional system of conflict management of “Panchayat” in the Asian subcontinent and presents it as an analogous model to resolve interstate conflicts between India and Pakistan. By examining the psychological and moral structure of Panchayat system, the paper develops a conceptual framework to make use of indigenous psychology behind the success of this local justice system in the conflict resolution process between the two neighboring countries. Panchayat system links both societies through this centuries-old model of conflict resolution which predates the British colonial justice system. People in the subcontinent tend to map the psychological and moral structure of their indigenous institutions onto other institutions in the outside world. Accordingly, by learning the psychological mechanism operating behind Panchayat institution, international mediators can build a better conciliatory framework to manage the conflicts between both countries. The paper proposes that the Panchayat system does not need to be used in its original shape, but the psycho-dynamics of Panchayat should be included in modern conflict resolution techniques used to manage the Pakistan-India case.