The report said that India continued to experience attacks, "including by Maoist insurgents and Pakistan-based terrorists", in 2016.
"Pakistan did not take sufficient action against other externally focused groups, such as LeT and JeM in 2016, which continued to operate, train, organise, and fundraise in Pakistan", the report said.
The US report states, "Although LeT is banned in Pakistan, LeT's wings Jamaat-ud-Dawa (JuD) and Falah-i-Insaniat Foundation (FiF) were able to openly engage in fundraising, including in the capital".
It said Pakistan remained "an important counter-terrorism partner" a year ago, but it did not take sufficient action against groups that target India and Afghanistan. "LeT and JeM continued to hold rallies, raise money, recruit, and train in Pakistan", it said.
"In January, India experienced a terrorist attack against an Indian military facility in Pathankot, Punjab, which was blamed by authorities on JeM". A number of individuals were arrested for ISIS-affiliated recruitment and attack plotting within India, the report said.
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The United States government has listed Pakistan among nations that provide "safe haven" to terrorist groups.
"While not a ban, this allows the government to closely scrutinize the activities of both organizations".
In its annual Country Report on Countering Terrorism, the US State Department said though the Pakistan government supported political reconciliation between the Afghan government and the Afghan Taliban, it "failed to take significant action to constrain the ability of the Afghan Taliban and Haqqani network to operate from Pakistan-based safe havens and threaten US and Afghan forces in Afghanistan".
It said that on November 11, 2016, Pakistana's National Counterterrorism Authority published its own list of banned organisations that placed the JuD in a separate section for groups that are "Under Observation", but not banned.
The United States on Wednesday acknowledged that terrorism has reduced in Pakistan in 2016 for the second straight year and the country has taken constructive measures on nuclear safety and weapons of mass destruction (WMDs), reported a private TV channel. These countries include Afghanistan, Syria, Iraq, Columbia, Somalia, Philippines, Libya and Egypt.