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Nearly 1.5 million people have been displaced by this month's fighting in the north-western region, and about two million since last August, the United Nations refugee agency says.

In Swat, the army says that about 15,000 members of the security forces are fighting between 4,000 and 5,000 militants. It says more than 1,000 militants and more than 50 soldiers have been killed since the offensive began.

The turmoil in Buner, a district of about 1 million people, does not pose an immediate threat to Islamabad, which lies across a mountain range and the river Indus. But the speed and aggression of the militant advance has stoked a sense of alarm across the country, even among normally conservative forces.

"If Taliban continue to move at this pace they will soon be knocking at the doors of Islamabad," Maulana Fazlur Rehman, leader of the pro-Taliban Jamiat Ulema e Islam party, told the national assembly yesterday.The Taliban could soon seize control of Tarbela Dam, a strategic reservoir, Rehman warned.

Blame for the turmoil has focused on a controversial peace deal the provincial government signed with militants in February. Hoping to defuse the insurgency, the Awami National party-led government acceded to demands for sharia law in Swat and seven surrounding districts, known collectively as Malakand Division.The changes were ratified by the national parliament last week with cross-party consensus. Since then, the Taliban have moved to establish much more than judicial control.

In Mingora, the commercial hub of Swat, the police retain a low-key presence, reduced to directing traffic. Most politicians have fled, many under death threats. Many residents said it was not clear who was in control of the town.

In Imam Dheri, the Taliban headquarters near Mingora, a Taliban spokesman, Muslim Khan, told the Guardian their goal was the establishment of an Islamic caliphate first in Pakistan and then across the Muslim world."Democracy is a system for European countries. It is not for Muslims," he said. "This is not just about justice. It should be in education, health, economics. Everything should be under sharia."

The government has warned that 500,000 people could try to leave if the peace deal formally breaks down, although the BBC's Mark Dummett, in Islamabad, says the army has not yet launched the offensive most are now expecting.

Afghan officials said Tuesday's violence broke out after more than 100 Taleban militants attacked a police checkpoint in Farah, in the far west of Afghanistan, killing three police.

The insurgents then reportedly moved to a nearby village where they killed three civilians who they accused of spying for the government. As the fighting continued, US airstrikes targeted militants thought to be sheltering in nearby houses. At least 25 Taleban fighters were reported to have died. But a growing number of reports from the area now suggest civilians were also seeking refuge in the buildings. Our correspondent in Kabul said local officials told him they saw the bodies of about 20 women and children in two trucks.

A spokeswoman for the International Committee of the Red Cross said a team of observers sent to the site of the air strikes saw houses destroyed and dozens of dead bodies, including women and children. "We can absolutely confirm there were civilian casualties," Jessica Barry said.

The US military said coalition troops were called to assist Afghan forces as they attempted to fight off an insurgent attack.

Two weeks ago the Taliban occupied a Sufi shrine in Buner, accusing locals of using it for "un-Islamic" practices. On Wednesday they swept through the main town, Daggar. Gun-toting militants looted aid agency offices, stole western-funded vehicles and forced police to retreat into their stations.

On Wednesday the US secretary of state, Hilary Clinton, accused President Asif Ali Zardari's government of "basically abdicating to the Taliban and the extremists". After an outcry from Pakistani officials, she modified her tone yesterday, conceding there was an "increasing awareness" of the threat within government circles.

The army spokesman, General Athar Abbas, said that western fears were "overblown" and called for patience in dealing with the militants. Taliban violence was swinging divided public opinion against the militants, he said. "We are giving them enough rope to hang themselves."

Certainly a new sense of urgency is gripping Pakistan's political class, where it has been fashionable to call the fight against the Taliban "America's war". The opposition leader, Nawaz Sharif, urged the government to contain the militants within Swat.

A more surprising statement came from Maulana Fazlur Rahman, the leader of the pro-Taliban Jamiat Ulema-e-Islam party, who warned the national assembly on Wednesday: "If Taliban continue to move at this pace they will soon be knocking at the doors of Islamabad."

But there is little sense yet of a concerted effort to push back the militants, who have exposed the fragility of the federation and resurrected fears that the country is heading towards break-up.

The Buner assault is likely to strain the controversial Swat peace accord. In exchange for peace, the provincial government, headed by the secular Awami National party, agreed in February to introduce sharia law in Swat and seven adjoining districts known as Malakand Division - an area of about 10,000 square miles that accounts for one third of the North West Frontier province. But since the deal, the Taliban have established control over much more than the judicial system.

In Mingora, the valley's commercial hub, police have been reduced to directing traffic and secular politicians have fled, many under death threats.

Sharia in Pakistan, as in Afghanistan, exists in tandem with a modern legal code but does not supersede it. Sharia courts rule on certain religious and moral issues, while other cases are tried by regular courts. Mohammed, Aziz and other radicals espouse a more severe version like the one Taliban rulers imposed on Afghanistan in the 1990s, which segregates women and imposes harsh punishments.

Supporters of the Swat agreement pointed out that residents have been demanding sharia for years to replace the slow, corrupt justice system. But Swati leaders said that the local version of Islamic law was traditionally moderate and that in elections last year Swatis voted overwhelmingly for two secular parties.

This week, after the peace accord was endorsed, officials and pro-government news media described the atmosphere in Swat as relieved and heading back to normalcy. But several people who visited the Swati capital of Mingora this week said they saw worried faces, no women in the markets, and clusters of black-turbaned men watching everyone closely.