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This paper analyzes the potential of cooperative proxy caching for peer-to-peer (P2P) traffic as a means to ease the burden imposed by P2P traffic on Internet Service Providers (ISPs). In particular, we propose two models for cooperative caching of P2P traffic. The first model enables cooperation among caches that belong to different autonomous systems (ASs), while the second considers cooperation among caches deployed within the same AS. We analyze the potential gain of cooperative caching in these two models. To perform this analysis, we conduct an eight-month measurement study on a popular P2P system to collect traffic traces for multiple caches. Then, we perform extensive trace-based simulations to analyze different angles of cooperative caching schemes. Our results demonstrate that: 1) significant improvement in byte hit rate can be achieved using cooperative caching, 2) simple object replacement policies are sufficient to achieve that gain, and 3) the overhead imposed by cooperative caching is negligible. In addition, we develop an analytic model to assess the gain from cooperative caching in different settings. The model accounts for number of caches, salient P2P traffic features, and network characteristics. Our model confirms that substantial gains from cooperative caching are attainable under wide ranges of traffic and network characteristics.