The bilateral relationship between Pakistan and Afghanistan has long been overshadowed by mutual mistrust and strategic rivalry, despite deep cultural ties and Pakistan hosting the world's largest Afghan refugee population. This study applies the Trust Theory and the Prisoner's Dilemma framework to analyze the persistent lack of cooperation between the two states. The research highlights how territorial disputes, cross-border terrorism, geopolitical competition, and external interventions have fueled tensions. While both countries occasionally engage in strategic cooperation under international mediation, their interactions are largely shaped by self-interest, security concerns, and historical grievances. The study argues that economic incentives, diplomatic engagement, and institutional mechanisms could help break this cycle of mistrust. However, deep-rooted historical suspicions and external influences continue to hinder long-term cooperation. Economic interdependence and mutual security assurances are crucial for stabilizing Pak-Afghan relations and fostering regional peace.