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Musharraf: There are many Indian extremists who have links with extremists in Pakistan. So if the world is serious about combating terrorism, then don't leave India out. Originally, Richard Holbrooke was supposed to be the US special representative for all three countries, but the strong Indian lobby in America prevented that.

Musharraf: No, he is aiming at the right things. He is showing intentions of improving the dialogue with the Muslim world, which is good. He is right when he says that more forces must be deployed in Afghanistan. There is an intention of increasing funding for Pakistan, which is also good. But he also has to understand the reality in Pakistan and I am not sure he does.

Musharraf: One of the realities is that the Indian intelligence service RAW is interfering in our country. For example in Balochistan, our largest province bordering Iran and Afghanistan. One of the most brutal insurgents against our forces, Brahamdagh Bugti ...

Musharraf: ... he is sitting in Kabul, protected by the Afghan government and provided with weapons and money by the Indian intelligence agency RAW. He has his own training camps and sends his fighters to Balochistan where they terrorize people and damage the civil infrastructure. RAW is also interfering in the Swat Valley, I know that. Where do all these Taliban fighters in Swat get their arms and money from? From Afghanistan. The Indian consulates in Jallalabad and Kandahar only exist to be a thorn in the side of Pakistan.

SPIEGEL: Let us talk about the role of the ISI. A short time ago, US newspapers reported that ISI has systematically supported Taliban groups. Is that true? Musharraf: Intelligence always has access to other networks -- this is what Americans did with KGB, this is what ISI also does. You should understand that the army is on board to fight the Taliban and al-Qaida. I have always been against the Taliban. Don't try to lecture us about how we should handle this tactically. I will give you an example: Siraj Haqqani ... SPIEGEL: ... a powerful Taliban commander who is allegedly secretly allied with the ISI. Musharraf: He is the man who has influence over Baitullah Mehsud, a dangerous terrorist, the fiercest commander in South Waiziristan and the murderer of Benazir Bhutto as we know today. Mehsud kidnapped our ambassador in Kabul and our intelligence used Haqqani's influence to get him released. Now, that does not mean that Haqqani is supported by us. The intelligence service is using certain enemies against other enemies. And it is better to tackle them one by one than making them all enemies.

Musharraf: The Americans are hated in the country today. The US drone attacks, which we have been living with for months now, are most unpopular -- there is no doubt about it. Regardless whether they are killing terrorists, Taliban or Al-Qaida-figures or not, there are too many civilian victims. The deployment of drones has to be stopped.

SPIEGEL: The US military eliminated several high-ranking al-Qaida figures through drone attacks. What would be a possible alternative? Musharraf: We have to find a way or method with which the Pakistani army could conduct these attacks itself. There would immediately be much better acceptance amongst the populice and we would cause less collateral damage and there would be fewer civilian victims.

Some analysts fear that the US may push India to limit its presence in Afghanistan to "please" Pakistan. India is spending millions of dollars in infrastructure projects in Afghanistan.

Mr Holbrooke has denied that Washington wanted to become a mediator between the two neighbours. "That is not our job," he told reporters in Islamabad. He said the US was "not going to be involved" in mediating in the dispute over Kashmir.

Mr Obama has pledged substantial economic assistance for Pakistan - more than $1bn (£684m) annually over the next five years - but the money will depend on the army's performance against the Taleban and al-Qaeda.

Pakistan objects to missile strikes by pilotless U.S. drones on militants in Pakistan, saying they violate its sovereignty and are counter-productive in fighting terrorism. Pakistan has also been angered by U.S. accusations elements in its military's Inter-Services Intelligence agency had contact with, or even provided support to, militants.

Pakistan for years used Islamists to further objectives in Afghanistan and Kashmir, which both Pakistan and India claim, but it has denied accusations it has maintained support.

Pakistan's Dawn newspaper said recently a condition would be included in the U.S. aid bill requiring Pakistan to stop support to any person or group aiming to hurt India.

Another condition to be included in the U.S. aid bill, Dawn reported, was that Pakistan ensures access to individuals suspected of involvement in nuclear proliferation.

The Pakistani military has lost the wars it has fought via traditional means. But running guerrilla operations—against the Soviets, the Indians and the Afghans—has proved an extremely cost-effective way to keep its neighbors off balance.

The ambassador's book, "Pakistan: Between Mosque and Military," marshals strong evidence that, at least until recently, the Pakistani military made the pretense of arresting militants in order to get funds from Washington. But it never shut down the networks. "From the point of view of Pakistan's Islamists and their backers in the ISI [Pakistan's military intelligence]," Haqqani writes, "jihad is on hold but not yet over. Pakistan still has an unfinished agenda in Afghanistan and Kashmir.

The book concludes by telling how Pakistan's military has used the threat from these militant groups to maintain power, delegitimize the civilian government and—most crucial of all—keep aid flowing from the United States. And the book's author has now joined in this great game. Last week Ambassador Haqqani wrote an op-ed claiming that Pakistan was fighting these militant groups vigorously. The only problem, he explained, was that Washington was reluctant to provide the weapons, training and funds Pakistan needs. He has become a character out of the pages of his own book.

Today, the hopes that those civilian militias inspired are gone, brushed away by the realization that Pakistanis can do little to stem the Taliban advance if their government and military will not help them.

The peace deal the military struck with the Taliban in February in neighboring Swat further demoralized people in Buner. Residents and local officials said they asked themselves how they could continue to resist the Taliban when the military had abandoned the effort. The Taliban were emboldened by the deal: it called for the institution of Shariah, the strict legal code of Islam based on the Koran, throughout Malakand Agency, which includes Swat and Buner. It allowed the Taliban amnesty for their killings, floggings and destruction of girls schools in Swat.

Still, when the Taliban rolled into Buner from Swat through the town of Gokan on April 5, a well-to-do businessman, Fateh Mohammed, organized another posse of civilian fighters to take on the militants in the town of Sultanwas. Five civilians and three policemen were killed, he said. Some newspaper reports said 17 Taliban were killed.

At that point, the chief government official in charge of Malakand, Mohammed Javed, proposed what he called peace talks. Mr. Javed, an experienced bureaucrat in the Pakistani civil service, was appointed in late February as the main government power broker in Malakand even though he was known to be sympathetic to the Taliban, a senior government official in North-West Frontier Province said. The government had been under pressure to bring calm to Swat and essentially capitulated to Taliban demands for Mr. Javed’s appointment, the official said.

In what some residents in Swat and now in Buner say had been a pattern of favorable decisions led by Mr. Javed on behalf of the Taliban, the talks in Buner turned out to be a “betrayal,” said a former police officer from the area, who was afraid to be identified.

In an apparent acknowledgment that Mr. Javed had been too sympathetic to the Taliban, the government announced Saturday that he had been replaced by Fazal Karim Khattack.

To bolster their strength, and insinuate themselves in Buner, the Taliban also relied heavily on the adherents of a hard-line militant group, the Movement for the Implementation of the Shariah of Muhammad, which has agitated for Islamic law in Pakistan. Their leader, Sufi Mohammed, comes from the region around Swat and Buner and has whipped up local support and intimidated Taliban opponents.

early last week the Taliban showed their power by ordering the state courts shut. They announced that they would open Islamic courts, practicing Shariah, by the end of the month. The militants have also placed a tax payable to the Taliban on all marble quarried at mines, said a senior police officer who worked in Buner.

The police were so intimidated they mostly stayed inside station houses, he said. “They are setting up a parallel government.”

With their success in Buner, the Taliban felt flush with success and increasingly confident that they could repeat the template, residents and analysts said. In the main prize, the richest and most populous province, Punjab, in eastern Pakistan, the Taliban are relying on the sleeper cells of other militant groups, including the many fighters who had been trained by the Pakistani military for combat in Kashmir, and now felt abandoned by the state, they said.

It would not be difficult for the Taliban to seize Peshawar, the capital of North-West Frontier Province, by shutting down the airport and blocking the two main thoroughfares from Islamabad, a Western official with long experience in the province said. At midweek, a convoy of heavily armed Taliban vehicles was seen barreling along the four-lane motorway between Islamabad and Peshawar, according to Mr. Sherpao, the former minister of the interior.

Across North-West Frontier Province, the Taliban are rapidly consolidating power by activating cells that consisted of a potent mix of jihadist groups, he said.