The letter, dated June 14, 1984, was made public for the first time today as part of a British government inquiry into the role played by the UK in the lead up to the Indian Army operation on Golden Temple in Amritsar to remove militants.
"It is never easy to undertake security action involving a place of worship... But this place, so sacred to the people of the Sikh faith, had been converted by terrorists into a base of operations," wrote Gandhi just days after the operation that left more than 1,000 people dead.
The former Indian prime minister also shared her regrets over the fallout of the military action with Thatcher, one of her close political allies.
"Many in the Sikh community have been shaken by this traumatic event. The process of healing and conciliation will take time but we shall persevere," she wrote.
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Among them is a note dated February 23, 1984, that sets out how an eight-day visit by a British military expert had helped draw out a "realistic and workable plan" to root out extremists from the Golden Temple as the Indians were fairly unprepared for action and were applying a "sledgehammer to crack a nut" principle to the whole operation.
British Prime Minister David Cameron had ordered the inquiry after documents released under the 30-year declassification rule here implied British SAS commanders had advised the Indian government as it drew up plans for a military operation on Golden Temple in February 1984.