Retired Colonel Gerald Carozza, who served as an adviser to the U.S. campaign in Afghanistan, accused Lieutenant General William Caldwell, then head of U.S. and NATO efforts to train Afghan security forces, and other senior officials of delaying a military investigation into allegations of corruption and patient abuse at the Dawood National Military Hospital.

“The evidence is clear to me that General Caldwell had the request (for a probe into the hospital) withdrawn and postponed until after the (November 2010 U.S. congressional) election and then, after the election, tried to intimidate his subordinates into a consensus that it need not move forward at all,” Carozza told a subcommittee of the House Oversight and Government Reform Committee.

Carozza and several other former and current officials told lawmakers, who are examining whether military leaders blocked or delayed the hospital probe, that they struggled to get commanders to act on reports of entrenched problems at the U.S.-funded hospital.

According to the Oversight Committee, the United States has spent over $180 million on operating medical sites in Afghanistan, most of which is believed to have gone to Dawood, where NATO personnel oversee Afghan medical staff.

Lawmakers have also said that $43 million in U.S. aid was “missing” at the Kabul military hospital.

Photographs taken at the hospital in 2010 showed neglected patients suffering from problems including gangrene and maggots in their wounds.

Caldwell, who is now a senior Army official in the United States, and other military officials who oversaw the U.S. training effort in Afghanistan were not invited to testify at Tuesday’s hearing.

Colonel Wayne Shanks, a military spokesman, said Caldwell “would welcome the opportunity to respond to any inquiry and I’m confident that once the facts are presented and examined, all allegations will be proven false.”

Lawmakers have asked the Defense Department to examine whether military leaders had sought to cover up reports of abuse at the hospital in 2010, including reports of vital medicine being stolen while patients languished without proper care.

Beyond the possible diversion of U.S. supplies and funds, U.S. support for the military hospital takes on greater importance as NATO nations seek to foster an effective Afghan military. Providing Afghan soldiers adequate medical care will be crucial if local forces are to stand against the Taliban when foreign troops withdraw in coming years.

‘ON NOTICE?’

Subcommittee chairman Jason Chaffetz, a Republican, seized on reports that Caldwell and other military leaders sought to deter hospital probes as what he said was proof of a Pentagon failure to provide Congress with accurate, timely information about its activities — and shortcomings — in Afghanistan.

Chaffetz said senior commanders in Afghanistan, including Caldwell and General David Petraeus, the then-head of U.S. and NATO forces in Afghanistan who now leads the Central Intelligence Agency, were briefed on the hospital’s problems.

“Investigations were apparently delayed because of personal politics and an aggressive public relations campaign attempted to cloud the facts,” Chaffetz said.

“I want the Pentagon to be on notice;- it will not be acceptable to hide documents,” he later said.

The Defense Department has acknowledged problems at the hospital and has said that “investigations and corrective action” were under way.

The Pentagon’s inspector general office has undertaken several investigations of the Afghan medical system, including the Dawood hospital, but officials declined to comment on whether the inspector general would conduct a separate probe into allegations senior officials sought to cover up problems.

While Carozza said Caldwell resisted suggestions of a new hospital probe even after the November 2010 congressional elections, Colonel Mark Fassl, former inspector general for the NATO training mission in Afghanistan, told lawmakers he was asked to retract a request for a stepped-up hospital probe shortly before the elections.

Fassl said that Caldwell brought up his relationship to President Barack Obama in discussing the potential probe ahead of the elections.

(Editing by Eric Beech and Cynthia Osterman)

The meeting in late May followed months of clamoring by Islamabad, images of flag-draped coffins on TV, and widespread outcry from Pakistanis incensed by the U.S. air attack that killed 24 of their soldiers on the Afghan border last November.

The breakthrough, in which Islamabad reopened supply routes into Afghanistan and Washington yielded to months of Pakistani demands to apologize for the border deaths, was praised as a prelude to improved ties between two nations whose security alliance had lapsed into mutual suspicion and hostility.

After U.S. Secretary of State Hillary Clinton’s discussions with Pakistani President Asif Ali Zardari in the cavernous Chicago conference center where world leaders met for a NATO summit, Clinton instructed Thomas Nides, a top deputy back in Washington, to do what it took to find a solution ensuring NATO could once again supply the war in Afghanistan via Pakistan.

At the heart of last week’s denouement was a carefully worded statement that allowed the United States to accommodate Pakistani indignation without opening President Barack Obama up to criticism months before presidential polls.

Just as importantly, it aimed to avoid alienating those within Obama’s government who had resisted apologizing to a country many in Washington see as acting to subvert U.S. goals in the region, even while accepting massive U.S. aid.

“A lot of people were holding their nose at the White House and the Pentagon at the notion of an apology,” a U.S. official said on condition of anonymity.

“The logic was that this was not a full-throated apology but that it was enough of a statement of regret, using terms associated with an apology, to get us across the GLOC finish line,” the official said, using the acronym used for the supply routes – or Ground Lines of Communications – that Pakistan shut down after the November 26 border attack.

“It was a semantic high-wire act.”

TAKING IT TO THE TOP

Clinton’s talks in Chicago with Zardari proved pivotal because, for the first time, they elevated months of efforts to hammer out a solution on technical issues, including proposed fees on NATO supplies, to the senior political level.

Nides and his Pakistani counterpart, Finance Minister Abdul Hafeez Shaikh, then spent weeks crafting language that would be acceptable to both sides, sealing the deal during Nides’ visit to Islamabad just days before an internal U.S. deadline of the July 4 independence holiday.

Without a deal, U.S. officials believed, fed-up lawmakers might act to clamp down on U.S. aid to Pakistan after then.

In her statement, issued after a call last Tuesday with Pakistani Foreign Minister Hina Rabbani Khar, Clinton did not use the word “apology.”

“Foreign Minister Khar and I acknowledged the mistakes that resulted in the loss of Pakistani military lives,” Clinton said. “We are sorry for the losses suffered by the Pakistani military,” she said.

According to sources familiar with the matter, the deal was aided by signals from the Pakistani side that parliamentary demands for an “unconditional” apology would not necessitate stronger language than Clinton ultimately used. Pakistan also dropped demands for extra fees on NATO supplies.

In what may have been another instrumental element, Pakistani officials said the linguistic hair-splitting in Washington would fade when Clinton’s statement was translated into Urdu.

After months of rejecting an apology, the White House appears to have embraced the final arrangement in the latter part of June as bipartisan support emerged in Washington for striking a deal.

U.S. officials saw political reaction to Defense Secretary Leon Panetta’s June 13 congressional testimony – in which he said that the supply route closure was costing an extra $100 million a month – as a meaningful sign that an apology wouldn’t trigger a political storm for Obama.

There were also suggestions that patience was growing short among Washington’s NATO allies, who began to signal interest in unilateral arrangements of their own with Pakistan.

Another U.S. official said that while France and Britain – British Foreign Secretary William Hague made a visit to Islamabad in mid-June – expressed eagerness to have the ground routes open, there was never any suggestion that fellow NATO nations would break ranks with the United States.

RESERVATIONS AT PENTAGON

Clinton’s language appeared to have been crafted with one eye on the U.S. Defense Department, where officials for months had refused to apologize for a confused nighttime incident that they saw as a case of legitimate self-defense: the Pakistanis, they said, fired first.

A U.S. investigation into the incident – in which Pakistan refused to take part – found that both sides were to blame and said the deaths were the result of a “misunderstanding.” Pakistan called it an unprovoked assault.

Importantly, Pakistan’s military could scarcely afford to be seen as bowing to the United States just months after coming under unprecedented public pressure for the 2011 U.S. raid, conducted without Islamabad’s knowledge, that killed al Qaeda leader Osama bin Laden on Pakistani territory.

While the State Department advocated some sort of apology from the start, resistance by many officials at the Pentagon and White House was magnified by widespread frustration at Pakistan’s perceived unwillingness act against militants, something seen as a top impediment to stability in Afghanistan as NATO nations withdraw their troops.

Pakistan vehemently denies turning a blind eye to insurgents and points out that many of its own soldiers and civilians have died at the hands of various militant groups.

At the Pentagon, both Panetta and General Martin Dempsey, chairman of the Joint Chiefs of Staff, were known to be strongly opposed to an apology. As late as June 21, Panetta suggested past expressions of regret and condolence were sufficient.

“We’ve made clear what our position is, and I think it’s time to move on,” Panetta said in an interview with Reuters, when asked if he would oppose a further apology.

Last week, Panetta welcomed the reopening of the supply routes in a two-sentence statement, saying the two countries would work together on security issues. There was no mention of the Pakistani soldiers who died.

Panetta “has acknowledged the regrets we expressed … and the mistakes made by both sides,” said Captain John Kirby, a Pentagon spokesman. “And he has been clear that it is time to move the relationship forward.”

While the position of the U.S. defense chief and others at the Pentagon many not have changed since November, they do not appear to be troubled by the wording of the message that broke the long impasse with Pakistan.

“Everyone at the end of the day can say they got what they wanted – the White House, the Pakistanis, the State Department, the Pentagon,” the first U.S. official said.

(Additional reporting by Arshad Mohammed, Phil Stewart and Qasim Nauman; Editing by David Brunnstrom)

But bridging underlying differences that strained U.S.-Pakistani ties close to the breaking point will be daunting as the allies remain at odds over how to handle the twin threats of the Taliban in Afghanistan and militants in Pakistani tribal areas.

The agreement reached this week prompting Pakistan to reopen NATO supply routes into Afghanistan, clinched when U.S. President Barack Obama’s administration ceded to months of Pakistani demands to apologize for the U.S. air attack that killed 24 Pakistani soldiers last November, was a relief for both countries.

“I certainly think it opened the door to many other issues,” Ambassador Sherry Rehman told Reuters in an interview.

“There’s a long road ahead, but both sides can use this opportunity to build a path to durable ties,” she added.

After U.S. Secretary of State Hillary Clinton apologized in a phone call to Pakistani Foreign Minister Hina Rabbani Khar, Pakistan permitted trucks carrying NATO supplies to cross into Afghanistan for the first time in more than seven months.

This was a boon for NATO nations that had been paying 2-1/2 times as much to bring supplies in through an alternate route.

While NATO will not pay any new fees for shipping supplies into Afghanistan, Washington will give Pakistan at least $1.2 billion owed it for costs incurred while fighting militants.

A U.S. official, speaking on condition of anonymity, said no specific commitments were made to increase military or counter-terrorism activities for Pakistan, but there was a ‘good faith agreement’ to continue talks on those issues.

ALL ABOUT THE APOLOGY

“A number of other things became stuck with all this,” the official said.

“It was never a money haggle or a transactional deal,” Rehman said, speaking during a visit to Islamabad where she helped usher in the arrangement ending the months-long deadlock.

The death of the 24 soldiers inflamed public opinion among Pakistanis already angered by U.S. drone strikes, the presence of CIA personnel in Pakistan and other issues.

“We’re a very hospitable people but we don’t like being taken for granted – that was the public sentiment,” she said, stressing why the apology was so vital.

“You had 24 boys draped in flags … that’s not something that was going away from the public domain. At every level this percolated up and down” Pakistani society.

While the breakthrough is welcome news for both sides, a harmonious road ahead is unlikely.

Issues that have inflamed bilateral ties persist, including U.S. accusations that Pakistan harbors militants and meddles in Afghanistan, Pakistani chafing at U.S. drone strikes and fears on both sides that Pakistan’s western neighbor will revert to chaos after most NATO troops leave by the end of 2014.

Pakistan has long complained that the United States has overlooked its contribution to the fight against militants – scores of al Qaeda fighters were apprehended in Pakistan with American help – and the threat Pakistanis themselves face.

Late last month, more than 100 fighters loyal to Pakistani Taliban leader Fazlullah snuck across the Afghan border and staged an ambush inside Pakistan.

Several days later, the fighters released a video of what they said were the heads of 17 ambushed soldiers, along with their identification cards.

It was a chilling reminder of the threat militants based in Afghanistan pose to Pakistan – the mirror image of the situation that fuels U.S. complaints about Pakistan, and a threat that would be sure to become more serious if Afghanistan were to slip back into civil war.

The United States repeatedly has pressed Pakistan to pursue the Taliban and its allies, especially the Haqqani network, which it blames for a series of high-profile attacks in Afghanistan.

Last month, U.S. Defense Secretary Leon Panetta said the United States was reaching the limits of its patience with Pakistan over what it deems as foot-dragging on militants.

Rehman said that most of al Qaeda has been decimated with Pakistani cooperation, and that Islamabad would go after foreign fighters linked to other militants according to “Pakistan’s priorities” and time frame.

The immediate military priority was combating insurgents who target Pakistani security forces and civilians, she said.

“We are going after our own right now – foreign fighters and militants who are on our soil, who are attacking us. If there is someone beheading me I am going to go after him first.”

Rehman said Pakistan stood to pay a high price if the NATO project in Afghanistan does not produce a stable country, in part because instability is likely to spill over the two countries’ porous border.

“For Pakistan, the stakes in Afghan stability are very high,” Rehman said.

(Writing By Missy Ryan; Editing by Michael Roddy)

After he joined a NATO-backed program to pacify lower-level insurgents this year, he says he was harassed by a government-supported militia in his area of north Afghanistan.

He considered rejoining his former Taliban comrades, but they see him as a traitor. “They said I had to prove my loyalty by killing foreigners or high-ranking Afghans,” Rassoul said.

“I used to have respect, money and weapons,” the former insurgent, a soft-spoken, bearded 36-year-old, told Reuters. “Now, I can’t even defend myself.”

As Western hopes for a peace deal with Taliban leaders fade, questions are mounting about how far a NATO scheme to entice foot soldiers to switch sides, now a mainstay of the West’s political strategy in Afghanistan, can go toward ending a long insurgent war.

David Hook, the British major general who heads NATO efforts to sign up local Taliban fighters to a three-step program that gives them training, community grants and amnesty for some crimes, said the so-called reintegration plan had recruited some 4,700 people since October 2010, mostly in areas of western and northern Afghanistan beyond the Taliban insurgency’s core.

While NATO commanders say the program has begun to accelerate, other Western officials are skeptical of the latest attempt to demobilize fighters whose motives and circumstances are as diverse, and at times opaque, as Afghanistan itself.

“It has had a tactical effect in some areas, but it is irrelevant to the outcome of the war,” one Western official said on condition of anonymity.

While even the drive’s proponents acknowledge it is not a ‘game-changer,’ they say it has the potential to trim the ranks of a militant group NATO estimates has 15,000 to 30,000 members.

“It’s our job to effectively reduce the fighting power of the insurgency,” Hook said in an interview.

Whether it can do so becomes a more pressing question as NATO nations prepare to withdraw most combat troops by the end of 2014, possibly weakening incentives to enter the program, and as the United States struggles to restart a parallel peace process with the Taliban’s reclusive leaders.

Despite the reservations, Western officials say the program, which costs a relatively modest sum of about $100 million a year, could help end violence on the ground if high-level talks resume.

The Obama administration’s hopes for soon establishing peace talks between the government of President Hamid Karzai and the Taliban faded in March when the Taliban leadership, believed to be based in Pakistan, suspended their participation in the preliminary discussions run by U.S. diplomats.

“If there is a breakthrough at the top, there will be a huge torrent of lower-level fighters coming in,” the Western official said. “We’ve got to be ready.”

AVOIDING A REPEAT OF HISTORY?

Hook said efforts to settle local grievances that may have pushed Afghans to join the insurgency, such as land or tribal disputes, differed from previous attempts to turn Taliban back into ordinary villagers.

Afghanistan’s recent past is as littered with efforts to demobilize fighters as it is with messy civil conflicts that begot them. The government of Soviet-backed leader Najibullah, for example, claimed to have reintegrated tens of thousands of fighters in the 1980s – not long before a vicious civil war broke out in which rival militias gutted the capital, Kabul.

Since the fall of the Taliban government in 2001, a series of U.N. and Afghan programs have aimed to break up militias and collect vast sums of weaponry. Despite the best intentions, the war has grinded on and violence has escalated dramatically after 2006.

Hook said the novelty of the current initiative, officially run by the Afghan government with support from the NATO-led international force, included community aid grants designed to ensure an ex-fighter’s tribe and neighbors welcome him back.

Fighters are also paid a stipend of $120 for several months and receive education and vocation training, but they are not guaranteed long-term work. Their motivation, NATO asserts, must be to return home “with their honor and dignity intact”.

At the program’s heart is the NATO assumption – which skeptics question – that the vast majority of Taliban take up arms for reasons other than ideology, such as the need for employment or a desire to settle local disputes.

Maqsoom Tajik, an insurgent commander who switched sides in Kunduz province five months ago, said he left the Taliban after militant leaders ordered him to conduct assassinations and sabotage public places, acts that could kill civilians.

“I wanted to wage jihad against the foreigners, but not that,” he said. “Now I sleep in peace, without worrying my house will be raided” by Afghan and NATO forces.

Yet Taliban spokesman Zabihullah Mujahid denied a single true Taliban insurgent had signed up to lay down arms.

“The Taliban are fighting for a cause and will never go to the government side,” he said. “The government’s game is to bring in people and assign them Taliban names.”

The program has been less successful in areas like Helmand and Kandahar, traditional Taliban hotbeds, and in parts of eastern Afghanistan where insurgents operate with greater impunity. In volatile Paktika province, bordering Pakistan, just one fighter has signed up to date.

Mark Jacobson, a former senior NATO official who is now at the German Marshall Fund, a Washington think tank, said the program had helped halt concerns about deteriorating security in northern and western Afghanistan.

“Reintegration of low level fighters – no matter where – is a positive step,” he said.

NO U-TURN?

While NATO believes only five fighters have rejoined the insurgency, Afghanistan’s history of fleeting alliances raises questions about how long such arrangements will hold.

The risks facing fighters who switch sides is enormous.

“How can you lure the foot soldiers if you’re still killing their commanders?” asked Sayed Mohammad Akbar Agha, an influential former Taliban whose cousin, Tayeb Agha, has represented the Taliban leadership in talks with U.S. diplomats.

Asadullah Amarkhil, an official from the provincial High Peace Council in northern Kunduz, said four former Taliban commanders had been killed in the last several months, just weeks after joining the program. “There is little protection for members of the Taliban who join the government,” Amerkhil said. “If things remain as they are, we won’t be able to encourage them into reintegration.”

Hook said that “isolated cases of disgruntled re-integrees” such as that of Rassoul do not detract from the program’s record.

Agha, who wears the long beard common among Taliban, warned that recruitment of low-level fighters may undermine efforts to revive high-level peace talks, by fuelling suspicions that Western brokers want only to split militant ranks.

The Obama administration hopes the Taliban will end its suspension of initial talks, and the Afghan government has undertaken outreach of its own with Taliban representatives. But even supporters acknowledge the peace gambit is a long shot.

Ahead of the gradual Western exit from Afghanistan, however, there are no signs that donors will withdraw support for a program they hope might improve security at the margins – and has a small chance of a much larger payoff.

“If – and I say if – the reintegration process really takes off, or if the (high-level) reconciliation process takes off, those two things could be very, very significant,” a senior figure in the NATO-led coalition said. That “could shift that equilibrium quite markedly in the direction we need it to go.”

(Additional reporting by Rob Taylor in KABUL and Mohammed Hamed in KUNDUZ; Editing by Michael Georgy and Jeremy Laurence)

After he joined a NATO-backed programme to pacify lower-level insurgents this year, he says he was harassed by a government-supported militia in his area of north Afghanistan.

He considered rejoining his former Taliban comrades, but they see him as a traitor. “They said I had to prove my loyalty by killing foreigners or high-ranking Afghans,” Rassoul said.

“I used to have respect, money and weapons,” the former insurgent, a soft-spoken, bearded 36-year-old, told Reuters. “Now, I can’t even defend myself.”

As Western hopes for a peace deal with Taliban leaders fade, questions are mounting about how far a NATO scheme to entice foot soldiers to switch sides, now a mainstay of the West’s political strategy in Afghanistan, can go toward ending a long insurgent war.

David Hook, the British major general who heads NATO efforts to sign up local Taliban fighters to a three-step programme that gives them training, community grants and amnesty for some crimes, said the so-called reintegration plan had recruited some 4,700 people since October 2010, mostly in areas of western and northern Afghanistan beyond the Taliban insurgency’s core.

While NATO commanders say the programme has begun to accelerate, other Western officials are sceptical of the latest attempt to demobilise fighters whose motives and circumstances are as diverse, and at times opaque, as Afghanistan itself.

“It has had a tactical effect in some areas, but it is irrelevant to the outcome of the war,” one Western official said on condition of anonymity.

While even the drive’s proponents acknowledge it is not a ‘game-changer,’ they say it has the potential to trim the ranks of a militant group NATO estimates has 15,000 to 30,000 members.

“It’s our job to effectively reduce the fighting power of the insurgency,” Hook said in an interview.

Whether it can do so becomes a more pressing question as NATO nations prepare to withdraw most combat troops by the end of 2014, possibly weakening incentives to enter the programme, and as the United States struggles to restart a parallel peace process with the Taliban’s reclusive leaders.

Despite the reservations, Western officials say the programme, which costs a relatively modest sum of about $100 million a year, could help end violence on the ground if high-level talks resume.

The Obama administration’s hopes for soon establishing peace talks between the government of President Hamid Karzai and the Taliban faded in March when the Taliban leadership, believed to be based in Pakistan, suspended their participation in the preliminary discussions run by U.S. diplomats.

“If there is a breakthrough at the top, there will be a huge torrent of lower-level fighters coming in,” the Western official said. “We’ve got to be ready.”

AVOIDING A REPEAT OF HISTORY?

Hook said efforts to settle local grievances that may have pushed Afghans to join the insurgency, such as land or tribal disputes, differed from previous attempts to turn Taliban back into ordinary villagers.

Afghanistan’s recent past is as littered with efforts to demobilise fighters as it is with messy civil conflicts that begot them. The government of Soviet-backed leader Najibullah, for example, claimed to have reintegrated tens of thousands of fighters in the 1980s – not long before a vicious civil war broke out in which rival militias gutted the capital, Kabul.

Since the fall of the Taliban government in 2001, a series of U.N. and Afghan programmes have aimed to break up militias and collect vast sums of weaponry. Despite the best intentions, the war has grinded on and violence has escalated dramatically after 2006.

Hook said the novelty of the current initiative, officially run by the Afghan government with support from the NATO-led international force, included community aid grants designed to ensure an ex-fighter’s tribe and neighbours welcome him back.

Fighters are also paid a stipend of $120 for several months and receive education and vocation training, but they are not guaranteed long-term work. Their motivation, NATO asserts, must be to return home “with their honour and dignity intact”.

At the programme’s heart is the NATO assumption – which sceptics question – that the vast majority of Taliban take up arms for reasons other than ideology, such as the need for employment or a desire to settle local disputes.

Maqsoom Tajik, an insurgent commander who switched sides in Kunduz province five months ago, said he left the Taliban after militant leaders ordered him to conduct assassinations and sabotage public places, acts that could kill civilians.

“I wanted to wage jihad against the foreigners, but not that,” he said. “Now I sleep in peace, without worrying my house will be raided” by Afghan and NATO forces.

Yet Taliban spokesman Zabihullah Mujahid denied a single true Taliban insurgent had signed up to lay down arms.

“The Taliban are fighting for a cause and will never go to the government side,” he said. “The government’s game is to bring in people and assign them Taliban names.”

The programme has been less successful in areas like Helmand and Kandahar, traditional Taliban hotbeds, and in parts of eastern Afghanistan where insurgents operate with greater impunity. In volatile Paktika province, bordering Pakistan, just one fighter has signed up to date.

Mark Jacobson, a former senior NATO official who is now at the German Marshall Fund, a Washington think tank, said the programme had helped halt concerns about deteriorating security in northern and western Afghanistan.

“Reintegration of low level fighters – no matter where – is a positive step,” he said.

NO U-TURN?

While NATO believes only five fighters have rejoined the insurgency, Afghanistan’s history of fleeting alliances raises questions about how long such arrangements will hold.

The risks facing fighters who switch sides is enormous.

“How can you lure the foot soldiers if you’re still killing their commanders?” asked Sayed Mohammad Akbar Agha, an influential former Taliban whose cousin, Tayeb Agha, has represented the Taliban leadership in talks with U.S. diplomats.

Asadullah Amarkhil, an official from the provincial High Peace Council in northern Kunduz, said four former Taliban commanders had been killed in the last several months, just weeks after joining the programme.

“There is little protection for members of the Taliban who join the government,” Amerkhil said. “If things remain as they are, we won’t be able to encourage them into reintegration.”

Hook said that “isolated cases of disgruntled re-integrees” such as that of Rassoul do not detract from the programme’s record.

Agha, who wears the long beard common among Taliban, warned that recruitment of low-level fighters may undermine efforts to revive high-level peace talks, by fuelling suspicions that Western brokers want only to split militant ranks.

The Obama administration hopes the Taliban will end its suspension of initial talks, and the Afghan government has undertaken outreach of its own with Taliban representatives. But even supporters acknowledge the peace gambit is a long shot.

Ahead of the gradual Western exit from Afghanistan, however, there are no signs that donors will withdraw support for a programme they hope might improve security at the margins – and has a small chance of a much larger payoff.

“If – and I say if – the reintegration process really takes off, or if the (high-level) reconciliation process takes off, those two things could be very, very significant,” a senior figure in the NATO-led coalition said. That “could shift that equilibrium quite markedly in the direction we need it to go.”

(Additional reporting by Rob Taylor in KABUL and Mohammed Hamed in KUNDUZ; Editing by Michael Georgy and Jeremy Laurence)

A senior Pakistani security official told Reuters a deal could be announced soon, potentially ending the long stalemate following a U.S. air attack last November that killed 24 Pakistani soldiers along the border with Afghanistan.

Senior Pakistani government and defense officials are due to meet to discuss the supply routes on Tuesday, a day after U.S. Deputy Secretary of State Thomas Nides headed back to Washington following talks with Pakistani officials.

“Things are looking very optimistic,” another Pakistani government official said, also speaking on condition of anonymity.

U.S. embassy officials declined to say if a deal was imminent.

While U.S. diplomats say they have made headway in recent talks, the two sides have appeared to have been on the brink of a deal before.

U.S. Secretary of State Hillary Clinton discussed the routes, which have become a major headache for NATO nations as they seek to keep troops equipped in Afghanistan, with new Pakistani Prime Minister Raja Pervez Ashraf when she called him over the weekend, the State Department said.

NATO nations, grappling with severe fiscal pressures at home, are anxious to reach an agreement, in part because shipping supplies into land-locked Afghanistan from the north costs 2-1/2 times as much as through Pakistan.

Pakistani media reported that Gen. John Allen, commander of NATO forces in Afghanistan, visited Islamabad on Monday for the second time in less than a week, but U.S. and Pakistani officials could not immediately confirm this.

DETAILS REMAIN UNCLEAR

Access to Afghanistan through Pakistan will become even more important as NATO commanders prepare to withdraw most of the 128,000 NATO soldiers in Afghanistan – and the equipment they have accumulated since 2001 – by the end of 2014.

But negotiations between U.S. and Pakistani officials in Islamabad have dragged on as Pakistan has insisted that the United States apologize for the air attack, which NATO described as an unfortunate accident.

The U.S. administration, seeking to shield President Barack Obama from Republican criticism months before a presidential election he hopes will hand him a second term, has refused such demands for months.

The details of the expected agreement remain unclear.

Islamabad has also sought a dramatic increase in the amount NATO nations pay to ship supplies into Afghanistan – by some reports requesting a twenty-fold increase – and payment of arrears in U.S. military support provided to Pakistan.

The November border incident marked a low point for U.S.-Pakistani relations, which have been plagued by mutual recriminations and mistrust since early 2011, when a CIA contractor was jailed in Pakistan.

Pakistani military leaders faced rare public criticism last year after the U.S. special forces raid – carried out without Pakistani knowledge – that killed al Qaeda leader Osama bin Laden deep inside the South Asian country.

Many officials in the Obama administration have been keen to reach a resolution as patience wears thin in the U.S. Congress, which sets assistance to Pakistan.

Last month U.S. Defence Secretary Leon Panetta said the United States should examine setting conditions to aid for Pakistan but not cutting it off.

(Additional reporting by Katharine Houreld and Sheree Sardar in ISLAMABAD and Andrew Quinn and David Alexander in WASHINGTON; editing by Diana Abdallah)

The meeting in Tokyo on July 8 aims to secure aid commitments for Afghanistan in the years up to 2014, when most NATO troops will depart, and to chart a course for assistance beyond then as donors seek to prevent a country still mired in insurgent war from slipping back into greater poverty and chaos.

After over 10 years and billions of dollars in outside aid, Afghanistan remains one of the world’s 10 poorest countries, while widespread corruption continues to undermine outsiders’ willingness to send much-needed investment.

While major strides have been made in schooling children and improving health for mothers and children, three-quarters of Afghans are illiterate and the average person earns only about $530 a year, according to the World Bank.

Afghanistan’s central bank estimates that $6-7 billion a year in aid will be needed over the next decade to foster economic growth in a country with few thriving industries.

Despite intense fiscal pressures of their own, donor nations say they are determined to continue to help Afghanistan, in part to ensure it does not move back into conditions that helped give the fundamentalist Taliban a foothold in the 1990s.

Also shaping the future of aid to Afghanistan may be waning patience among donors anxious to see the government of President Hamid Karzai take decisive steps to combat waste and fraud.

“There’s no question that it’s constantly on the table,” a U.S. embassy official said on condition of anonymity, referring to corruption and the need for aid accountability.

“It also shapes the thinking of government of Afghanistan in its dealings with donors, because donors do have such stringent fiduciary guidelines that they raise when they sign agreements.”

The official said there was a ‘positive donor climate’ ahead of the Tokyo conference, where both Afghanistan and donor countries will sign off on a ‘mutual accountability framework’ spelling out obligations for both the Afghan government and for countries providing assistance.

AFGHAN RESPONSIBILITY

Addressing a long-standing Afghan complaint about scatter-shot, poorly conceived assistance, donor countries will be asked to channel more aid money through the Afghanistan budget rather than through contractors or aid groups, the official sad.

While the United States will provide 42 percent of its aid through the Afghan budget in fiscal 2012, aid groups estimate that the overall level of on-budget foreign aid is much lower, around 20 percent.

In the conference commitment, donor nations will also pledge to better tailor aid to the government’s priorities.

Afghan ‘national priority programs’ include health, education, agriculture – and the mining sector, which Western officials see as a possible engine for growth in the future.

Afghanistan, meanwhile, will pledge to develop its own capacity to keep track of aid and prevent funding from going to corrupt government officials or inefficient contractors — rather than outsourcing auditing duties to outsiders.

“This next phase, this next decade of development for Afghanistan is going to be especially important,” the U.S. official said, in part because of “donor concerns that a lot of life and treasure have been given here.”

In a special address focused on corruption last month, Karzai tried to fend off donor concerns about corruption, calling on parliament to curtail nepotism and misuse of state funds.

But his government has yet to prosecute a single high-level corruption case, despite Afghanistan’s ranking by Transparency International as one of the world’s most graft-affected nations.

(Additional reporting by Hamid Shalizi and Amie Ferris-Rotman in Kabul; Editing by Michael Georgy and Jeremy Laurence)

Afghan officials say they expect the deal with the United States to include the number of U.S. troops permitted to remain in Afghanistan beyond 2014; the number of bases where troops will be located, and who will control them; what those troops can and can’t do and legal immunities for those soldiers.

Talks on the security agreement, which have not begun, follow the conclusion of another bilateral deal outlining the two countries’ future ties, which U.S. President Barack Obama and Afghan President Hamid Karzai signed in Kabul in May.

This time, negotiators must tackle some of the most sensitive issues that were ultimately excluded from the first deal, even as many Afghans, and Karzai himself, chafe against a foreign troop presence that has lasted more than a decade.

If such talks failed, the United States would be forced to pull out a force now numbering 90,000 by the end of 2014, when NATO nations are due to remove most troops, despite few signs that a resilient Taliban insurgency will soon die out.

Aimal Faizi, chief spokesman for Karzai, said the agreement, which is supposed to be finished by next May, would focus on the “nature, scope and obligations” of the U.S. military mission in Afghanistan after 2014.

“Both sides will start talking based on these three areas,” Faizi told Reuters.

It’s not known how many U.S. troops stationed in Afghanistan will stay behind after the end of 2014.

The remaining force could include several tens of thousands of U.S. soldiers, likely focusing on special forces operations targeting al Qaeda and other militants, advising Afghanistan’s inexperienced military, and retain the ability to launch U.S. drones that target militants in neighboring Pakistan.

“The security agreement will touch upon the most contentious issues that have had times strained the relationship between the two countries – so I expect that these will take a very long time,” said Brian Katulis, a senior fellow at the Center for American Progress, a Washington think tank.

Long-standing Afghan demands to subject foreign soldiers to local law may be the main stumbling block for negotiations.

A HARDER LINE?

Whether, and when, a U.S. soldier might be tried in a local court was perhaps the most contentious issue when the United States hammered out a similar deal in 2008 with Iraq. Ultimately, the deal allowed Iraq to try U.S. soldiers for “grave” crimes committed off-duty, and off base.

As in Iraq, foremost in the mind of Afghan negotiators will likely be past missteps or abuse by American soldiers, along with years of civilian deaths that have occurred during NATO military operations.

A series of scandals involving American soldiers this year culminated in March when a U.S. staff sergeant is alleged to have walked off his base and shot at least 16 villagers in their homes.

The soldier accused in that case, Robert Bales, was whisked out of Afghanistan and is facing military trial in the United States.

Afghans also demanded that U.S. soldiers who burned copies of the Muslim holy book on a NATO base face local trial. But U.S. officials have indicated they may face only administrative discipline within the U.S. military.

A current U.S. troop agreement with Afghanistan, which has been in force since 2003, gives U.S. military personnel protection from prosecution in Afghan courts in most cases.

Yet Karzai, who critics see as bowing to Western interests, may be keen to be seen to assert Afghan sovereignty by taking a harder line in those negotiations.

At the same time, Katulis said, “the Afghan government’s negotiating stance will be more limited than what we saw in Iraq last year because the Afghan government is much more dependent on external sources of support”.

There is always the possibility that Afghanistan could ultimately rebuff the U.S. bid to secure its future troop base in Afghanistan beyond 2014 if the two countries can’t hammer out a deal on troop immunity, or for other reasons.

Last year, U.S. officials abandoned talks for a deal that would have allowed some U.S. soldiers to remain in Iraq beyond the expiration of the two countries’ security pact.

That is seen as far less likely in Afghanistan given the country’s reliance on outside military power and the threat from the Taliban.

(Editing by Michael Georgy and Robert Birsel)

Salahuddin Rabbani, in his first Western media interview since taking his job in April, said he hoped to revive a process many Afghan and Western officials see as the best chance of restoring calm before a 2014 pullout of foreign combat troops.

Rabbani was chosen to replace his father, Burhanuddin, the revered former president and anti-Soviet fighter killed last year by a suicide bomber that some Afghan officials believe was dispatched from Pakistan. Islamabad denies any involvement.

Rabbani, a soft-spoken, bespectacled former diplomat who may struggle to command the same veneration his father enjoyed, spoke ahead of visits to Saudi Arabia and Pakistan, where he will discuss Afghan government efforts to jumpstart talks offering an alternative to a persistent insurgency.

“Pakistan can do a lot in bringing (the Taliban leadership) to the negotiating table,” Rabbani said, speaking in the same heavily guarded, pastel-colored home where his father was killed last year by a man described as a Taliban envoy.

“They have influence,” the head of Afghanistan’s High Peace Council said. “Pakistan is the key to the whole process.”

The Obama administration’s hopes of establishing peace talks between the government of President Hamid Karzai and the Taliban this year faded after the militants’ reclusive leadership, believed to be based in Pakistan, suspended participation in preliminary discussions run by U.S. diplomats.

That setback has focused attention on nascent efforts by the Afghan government to open its own channels with insurgent intermediaries, despite the fact the Taliban says it will not talk to what it deems an illegitimate “puppet” regime.

Pakistan, Rabbani said, must finally take action in areas where it has the potential to catalyze a process that has moved so slowly that critics suggest it is doomed.

CALL FOR PRISONER RELEASES

He said Pakistan should free Taliban prisoners such as Mullah Abdul Ghani Baradar, a co-founder of the movement who is described as No. 2 to its one-eyed leader, Mullah Omar.

“By releasing them or giving them to Afghan custody, that would help the process,” Rabbani said, suggesting he would redouble previous Afghan pleas to release Baradar and other Taliban who have supported peace talks with Kabul.

Afghan officials believe Baradar, a respected Pashtun tribal elder, could play an important role in convincing the Taliban to enter talks on Afghanistan’s future.

In 2009, he was reported to have taken steps toward opening peace talks without the consent of a Pakistani government that has a long history of seeking to secure influence over Afghan leaders. Baradar was arrested in Karachi in early 2010.

Pakistan says it supports a peace agreement, and points out that it allowed some Taliban to travel to the Gulf this year. But it says wider support is required among Afghans before real peace talks can take place, while both the U.S. and Taliban positions are plagued by ambiguity.

The Afghan government is pursuing possible peace leads in Qatar, where Washington has proposed sending Afghan detainees and where the Taliban could open an office; the United Arab Emirates; Saudi Arabia; and Turkey, where former Taliban finance minister Jan Agha Mutassim has signaled the group may be more open to peace talks than it once was, Rabbani said.

A conference in Paris this month also brought former Taliban together with Afghan politicians.

Rabbani said the Afghan government believed the Taliban, grappling with dissent between front-line militants who support a possible peace deal and those who oppose it, is now more open to direct talks with the Karzai government.

The Taliban may also be digesting the impact of an agreement signed in May that outlined a long-term U.S. aid and adviser presence in Afghanistan.

And while most NATO troops will be gone by the end of 2014, a modest force is expected to remain to conduct raids on insurgents and train Afghan troops under yet-to-be completed talks on military support and cooperation.

“We have received indications … through intermediaries. They have been sending message (that) they are ready to talk,” Rabbani said.

(Additional reporting by Mirwais Harooni; Editing by Rob Taylor and Mark Heinrich)

“We don’t think all these issues can be solved by fighting. There must be a political process, but the parties need to be serious about it,” Mohammad Sadiq, Islamabad’s ambassador in Kabul, told Reuters in an interview.

“There is a lack of clarity on both sides,” Sadiq said, referring to the U.S. and Taliban negotiating positions.

The role of Pakistan, with deep historic ties to the Taliban, will be pivotal in U.S. efforts to broker a peace deal between the government of Afghan President Hamid Karzai and the militant group, whose leaders are believed to based in Pakistan.

After more than 10 years of costly NATO efforts failed to defeat the Taliban on the battlefield, Western nations have embraced the goal of a negotiated end to the conflict even as they prepare to withdraw most combat troops by the end of 2014.

But the Obama administration’s hopes for quickly setting up negotiations between the Karzai government and the Taliban were dealt a blow in March when the Taliban’s reclusive leadership suspended participation in preliminary talks.

U.S. diplomats had hoped their initial meetings with Taliban representatives would set in motion the transfer of former Taliban officials held in Guantanamo Bay military prison to Qatar, the release of a U.S. soldier held by the Taliban, and eventually authentic peace talks among the Afghan parties.

A U.S.-educated diplomat who is a key Pakistani official on peace efforts, Sadiq said that despite deep skepticism among U.S. and Afghan officials – many of whom would accuse Pakistan itself of inconsistency – Pakistan supported the goal of a such a peace deal for Afghanistan.

Pakistan backed the Taliban’s hardline government in Afghanistan, which was toppled after the September 11, 2001, attacks, and is believed to prefer ethnic Pashtun dominance in Afghanistan over a northern-controlled government it fears could bolster the position of its arch-enemy, India.

Pakistan has promised to help bring all Afghan parties to the negotiating table.

AMBIGUITY, TURMOIL

Sadiq said the Taliban – whose public statements are famously opaque – must clarify whether their leaders are interested in substantive peace talks, or simply want freedom for former officials in U.S. custody.

That ambiguity, he said, has deepened turmoil within the group, already under pressure after years of battles against foreign troops and NATO strikes against senior members.

The U.S. position, he said, has meanwhile been hobbled by bureaucratic infighting and inconsistent offers to the Taliban regarding the proposed detainee transfer – which have fuelled militant suspicion about U.S. intentions and made Taliban leaders more reluctant to press ahead with talks.

“The Taliban suspicion is that this aims just to split the insurgents,” he said.

The U.S. State Department, which leads U.S. efforts to broker a peace deal, denied any inconsistencies, while the Taliban could not be reached for comment.

The U.S. administration says it remains hopeful of restarting talks, but even confidence-building moves are fraught with controversy and risk in the months before elections that Obama hopes will give him a second term.

Pakistan had provided support to the peace process, Sadiq said, allowing certain senior Taliban officials to travel from Pakistan to Qatar, where a political address was tentatively established as part of the now-halted U.S. peace plan.

Yet many within the U.S. and Afghan governments remain deeply suspicious about Pakistan’s motives.

Relations between Afghanistan and Pakistan were strained for months after last year’s assassination of Afghan peace envoy and former president Burhanuddin Rabbani, which Afghan officials blamed on Pakistan. Pakistan denied any responsibility.

Despite Pakistani promises, Afghan officials also complain privately that Pakistan is not cooperating with requests from Karzai for senior members of his government to have access to Taliban intermediaries in Pakistan.

NATO has long complained that Pakistan has failed to prevent militants from crossly a long, poorly guarded border into Afghanistan. The U.S. commander in Afghanistan repeated that assertion last week after at least 20 people were killed in a Taliban siege of a Kabul hotel.

(Editing by Rob Taylor and Robert Birsel)