By Ron Moreau and Michael Hirsh | NEWSWEEK
Oct 29, 2007 Issue

Whoever the real culprits turn out to be, the truth is that Pakistan's government has only itself to blame for the carnage in Karachi. Pakistani leaders created the Islamist monster that now operates with near impunity throughout the country. Militant Islamist groups that were originally recruited, trained and armed by Pakistan's Inter-Services Intelligence agency (ISI) have since become Islamabad's deadliest enemies. Twice they have nearly succeeded in assassinating Musharraf, who was once among their strongest supporters. In the last six years extremists have killed more than 1,000 Pakistani troops.

Today no other country on earth is arguably more dangerous than Pakistan. It has everything Osama bin Laden could ask for: political instability, a trusted network of radical Islamists, an abundance of angry young anti-Western recruits, secluded training areas, access to state-of-the-art electronic technology, regular air service to the West and security services that don't always do what they're supposed to do. (Unlike in Iraq or Afghanistan, there also aren't thousands of American troops hunting down would-be terrorists.) Then there's the country's large and growing nuclear program. "If you were to look around the world for where Al Qaeda is going to find its bomb, it's right in their backyard," says Bruce Riedel, the former senior director for South Asia on the National Security Council.

The conventional story about Pakistan has been that it is an unstable nuclear power, with distant tribal areas in terrorist hands. What is new, and more frightening, is the extent to which Taliban and Qaeda elements have now turned much of the country, including some cities, into a base that gives jihadists more room to maneuver, both in Pakistan and beyond.

In recent months, as Musharraf has grown more and more unpopular after eight years of rule, Islamists have been emboldened. The homegrown militants who have hidden Al Qaeda's leaders since the end of 2001 are no longer restricted to untamed mountain villages along the border. These Islamist fighters now operate relatively freely in cities like Karachi—a process the U.S. and Pakistani governments call "Talibanization." Hammered by suicide bombers and Iraq-style IEDs and reluctant to make war on its countrymen, Pakistan's demoralized military seems incapable of stopping the jihadists even in the cities. "Until I return to fight, I'll feel safe and relaxed here," Abdul Majadd, a Taliban commander who was badly wounded this summer during a fire fight against British troops in Afghanistan, told NEWSWEEK recently after he was evacuated to Karachi for emergency care.

Militancy is woven into the fabric of Pakistani society. At independence in 1947, the country's whisky-swilling founder, Mohammed Ali Jinnah, used Islam to forge a sense of national identity. Since then the various military dictators who have periodically ruled the country have found jihad to be a convenient means of distracting their citizens and furthering their foreign-policy aims. Gen. Zia ul-Haq turned Pakistan into a base for the mujahedin waging war on the Soviets in Afghanistan—and won billions in American aid in the process. In the 1990s, after the Soviet defeat, generals like Musharraf dispatched thousands of those fighters to wage a guerrilla campaign in Kashmir. Many trained across the border in Afghanistan, in the same camps that Al Qaeda had set up under the Taliban.

After 9/11 Musharraf promised Washington that he would cut off support for such groups, including the Taliban. Early on, he authorized the arrests of several top Qaeda leaders in Pakistani cities, including Khalid Sheikh Mohammed, the mastermind of the 9/11 attacks, and Abu Zubaydah, a top Qaeda organizer. But Musharraf's efforts have always been somewhat halfhearted, constrained by the deep sympathies that many of his countrymen have for jihadists. For decades Pakistanis were taught that the guerrillas were Muslim heroes, fighting for national honor and security. Such loyalties cannot be turned off like a tap. Several of the militants' onetime spymasters, both inside and outside the government, maintain links to their former charges. The security services will go after certain figures—particularly foreign Qaeda fighters—but ask others simply to lie low. Many officials—even many ordinary citizens—still think the jihadists should be preserved for future use as a strategic weapon, especially against India, long after America's War on Terror is over.

The safe haven provided by Pakistan has already had dire effects on U.S. and NATO efforts to fight the resurgent Taliban next door in Afghanistan. Taliban fighters now pretty much come and go as they please inside Pakistan. Their sick and injured get patched up in private hospitals there. Guns and supplies are readily available, and in the winter, when fighting traditionally dies down in Afghanistan, thousands retire to the country's thriving madrassas to study the Qur'an. Some of the brainier operatives attend courses in computer technology, video production and even English. Far from keeping a low profile, the visiting fighters attend services at local mosques, where after prayers they speak to the congregation, soliciting donations to support the war against the West. "Pakistan is like your shoulder that supports your RPG," Taliban commander Mullah Momin Ahmed told NEWSWEEK, barely a month before a U.S. airstrike killed him last September in Afghanistan's eastern Ghazni province. "Without it you couldn't fight. Thank God Pakistan is not against us."

Dozens of Taliban commanders have moved their wives and children to Pakistan, where they live in the suburbs of cities like Peshawar and Islamabad. This keeps them out of the reach of Afghan authorities, who have been known to arrest relatives in order to track down guerrilla fighters. Mullah Shabir Ahmad is a member of the Taliban's 30-man ruling council, or shura. He's moved his family to a modest neighborhood of nearly identical brick and mud-brick houses in Quetta. Inside his home he shows a visiting NEWSWEEK reporter a room filled with new bolts of cloth, Ramadan gifts from the city's Taliban sympathizers. He spends roughly half the year inside Pakistan, shuttling between Quetta, Karachi, Peshawar and the tribal belt to raise funds, recruit new fighters and plot strategy with other commanders.

The insurgents have no centralized supply system. Instead, each senior provincial commander operates his own network. Din Mohammad, a tall, portly man in his mid-30s, looks after the needs of insurgents who fight for commander Gul Agha in southern Helmand province. With cash from Afghanistan and from his own fund-raising efforts he buys shoes and warm clothes for Taliban fighters, walkie-talkies and satellite phones—even weapons, explosives and remote-control devices. The benign stuff he trucks into Afghanistan openly. The lethal items are hidden in shipments of clothes and food or under the baggage of Afghan refugees on their way home. Some Taliban chiefs prefer to shop for themselves. Earlier this month Mullah Rehmat, a Taliban commander, rested at a youth hostel in Peshawar while he waited for the master gunsmiths of Dera Adam Khel village to finish a $750 sniper rifle he'd ordered.

The contrast to 2002 is striking. Back then, in the first flush of Musharraf's crackdown on extremists, a NEWSWEEK reporter met Agha Jan, a former senior Taliban Defense Ministry official, in an orchard outside the city of Quetta. A nervous Jan recounted how he had to change homes every two nights for fear of capture, and he fled when some local villagers approached. Jan now has a house outside Quetta, where he lives when he's not fighting with Taliban forces across the border in his native Zabul province. Reporters in Peshawar, a strategic Pakistani border city some 50 miles east of the historic Khyber Pass and the Afghan border, say it's not unusual these days to receive phone calls from visiting Taliban commanders offering interviews, or asking where to find a cheap hotel, a good restaurant or a new cell phone.

Last August, a NEWSWEEK reporter received a phone call from the spokesman for a senior Taliban leader, inviting him for dinner at a popular restaurant in Peshawar. The reporter replied that he was already there. As he looked around, he saw the smiling jihadist sitting a few tables away. They shared a kilo of Afghan barbecue as the spokesman confidently talked about the Taliban's resurgence in Afghanistan and how comfortable they felt operating inside Pakistani cities and in the frontier tribal area. "The biggest chink in Musharraf's armor is his failure to move against the Taliban, particularly in the cities," says Samina Ahmed, the South Asia director of the International Crisis Group in Islamabad. "The brains, the ones who plan the operations, are not necessarily in the boonies or in the sticks, they're in cities like Quetta. Can he pick them up? Easily."

Taliban fighters say they are careful not to antagonize their hosts; the attacks against Pakistani troops have generally been conducted by Pakistani tribals, sometimes with the support of Qaeda operatives. But that's a fine distinction. "If you take away that support the Taliban are getting from across the border in Pakistan, it would be much easier for U.S., NATO and Afghan government forces to confront the Taliban inside Afghanistan," says Ahmed. Each group may have its own agenda, but they all share a visceral hatred of America and its regional allies—including Musharraf. The Taliban also work closely with Qaeda leaders in the tribal regions, planning attacks together and pooling their skills.

The Taliban presence began to grow out of control after Musharraf, his Army bloodied by incursions into South Wa-ziristan, cut a peace deal with the tribal region's Mehsud clan in 2005. He made another such truce with tribal militants in North Waziristan in 2006. The ceasefire agreements were publicly announced as treaties with tribal elders. Nothing could be farther from the truth. The deals were made directly with the militant leaders, their frontmen or terrified tribal elders who did the militants' bidding. As a result they were worthless: the militants had no intention of keeping their promise to stop the passage of arms and fighters across the Afghan border. While the Army halted offensive operations and dismantled checkpoints, the militants helped the Taliban and Al Qaeda regroup and reinfiltrate back into Afghanistan.

Those forces, all working together, have brought the Afghan jihad home to Pakistan. Within the tribes' ancient mud-walled fortresses they run training courses for insurgent recruits and suicide bombers. Some graduates travel to Afghanistan to fight beside the Taliban. Others will stay in the tribal area to fight the Pakistani Army, while others are sent out to hit targets in places like Karachi. Several terrorist plots in Britain have been traced back to the tribal areas.

Now the Pakistani government is bearing the brunt of the attacks. The threat turned critical in July, when more than 100 militants died in a weeklong shoot-out with government forces at Islamabad's Red Mosque. In retaliation, tribal suicide bombers have managed to penetrate highly guarded military facilities in the capital, the Army headquarters at Rawalpindi and elsewhere, killing scores. Authorities say that until the showdown, the Red Mosque had served as a way station and munitions depot for hundreds of fighters shuttling between Pakistan's cities and the tribal areas. It reopened Oct. 3, and preachers there are once again denouncing Musharraf and his partnership with the West. A similar message was delivered to Bhutto before she came home. Last week, speaking by satellite phone from the South Waziristan tribal area, a senior militant commander named Haji Muhamad Omar called Bhutto an agent of Washington. "She doesn't come back by her own choice. The United States and Britain are bringing her back to fight against the mujahedin," he said.

The militants dominate in areas beyond the tribal areas as well. Armed groups have effectively seized control in places like the picturesque Swat Valley, where a jihadi leader named Mullah Fazlullah rides a black horse and commands hundreds of men under the noses of a nearby Pakistani Army division that seldom leaves its barracks. Peshawar is perhaps the most important production and distribution center for Taliban and other Islamist material. Jihadi CD and DVD shops abound. One small shop features large posters of the notorious Taliban commander Mullah Dadullah Akhund, who was killed in Helmand earlier this year, and pictures of Guant?namo inmates in their orange jumpsuits behind barbed wire.

The Afghan refugee camps around Peshawar, meanwhile, have become vast jihadist sanctuaries. The Jalozai and Shamshatu camps, each housing some 100,000 Afghan refugees, date back to the war against the Soviets. Complaints from the Afghan government have forced Islamabad and the U.N. High Commissioner for Refugees to begin the long process of emptying Jalozai, a job that's supposed to be completed by next spring. Many of the camp's high-walled compounds are already abandoned. But few Jalozai residents are returning to Afghanistan when they leave the camps. Most are settling in Peshawar or other towns in the vicinity, which will allow the Taliban more space to operate in. A local mullah was arrested in Jalozai earlier this year after three Pakistani militants blew themselves up while using his house as a bomb factory.

The Shamshatu camp, just south of Peshawar, is the personal fiefdom of the notorious Afghan warlord Gulbuddin Hekmatyar. His guerrillas, the Hizb-i-Islami ("Party of Islam"), operate mainly in Afghanistan's Kunar province, but Shamshatu is their power base, in effect an autonomous enclave within Pakistan. Like Jalozai, the place resembles a sprawling, labyrinthine Afghan village of mud-brick houses surrounded by high mud walls, and it's ruled by strict, Taliban-style Islamic law. Music is forbidden—even musical ringtones on cell phones. So is tobacco. Women are banned from venturing outside except in the company of a male relative. (There are girls' schools, though: unlike his Taliban allies, Hekmatyar believes in women's education.)

Shamshatu contains high-security areas that are out of bounds even to camp residents. Camp residents say Hekmatyar's men run private jails in these off-limits areas. Recently a woman who lived in the camp dared to go shopping alone. When she entered a small electronics shop, gunmen followed her. They forced the shopkeeper to close his store, detained the woman and telephoned her husband. "If you won't kill her, we will," they told him, before handing her over with a warning that if they caught her again without an escort, they would kill her. Then they confiscated the shopkeeper's goods and threw him out of the camp.

Musharraf says his forces are doing everything possible to halt the jihadists' spread. Pakistan's president has shown he can deliver when he must. Late last February, just as Vice President Dick Cheney arrived in Islamabad to pressure Musharraf to fight harder against the Islamists, Pakistani military-intelligence agents in Quetta suddenly captured Mullah Obaidullah Akhund. As the Taliban's Defense minister and one of Mullah Omar's key deputies, he was the highest-ranking Taliban official the Pakistanis had ever taken into custody. A couple of months earlier, Pakistan reportedly informed U.S. forces in Afghanistan that another senior Taliban leader, Mullah Akhtar Mohammad Osmani, was heading into Afghanistan from Quetta. A U.S. airstrike promptly killed him, just inside Afghanistan. But those cases remain exceptional.

U.S. government officials say that Musharraf's government still has tight control over the nation's nuclear-weapons program. Still, radicals would not need to steal a whole bomb in order to create havoc. Pakistan has never made a public accounting of its nuclear materials, and last year its Atomic Energy Agency began publishing ads in newspapers instructing the public about how to recognize radioactive materials and their symbols. The ads were quickly withdrawn after they incited fears that fissile material had gone missing. But Pervez Hoodbhoy, a noted nuclear physicist at Quaid-i-Azam University in Islamabad, says outside experts don't really know how much highly enriched uranium Pakistan has produced in the past and how much remains in existing stocks. "No one has a real idea about that," he says. "That means that stuff could have gotten out. Little bits here or there. But we really don't know."

In Washington, a senior administration official involved in counterterrorism said U.S. intelligence is chronically fearful that Islamists might get hold of nuclear material, equipment or know-how in Pakistan. He recalled that after 9/11, a group of rogue Pakistani nuclear scientists met with Osama bin Laden. "Given that history, we continue to look at this issue very closely," he said, speaking on condition of anonymity because of the sensitivity of the issue.

It's not surprising that Pakistani authorities might give the Taliban special treatment. The country's intelligence officers and military men have maintained close personal relations with senior Taliban leaders ever since the Soviet occupation of Afghanistan in the 1980s. Western military and diplomatic officials say they doubt that Pakistan is still actively assisting Afghan insurgents—but they don't think it's trying very hard to stop them, either. "I'm not delusional," says a Western military official in Islamabad, not wishing to be quoted by name on such a sensitive topic. "Their [the Pakistani government's] guys are in contact with the Talibs. They may not be assisting them, but they aren't busting them, either." A Western diplomat, speaking off the record because he is not authorized to represent his government's views to the media, says, "I'm sure there are intelligence officials, active and retired, who have dealt with the Taliban in the past and still support their cause. That's the power of personal relationships over time. You don't cut those off abruptly."

The Taliban war effort is also greatly aided by dozens of "retired" former officials in Mullah Omar's defunct Taliban government who now reside in Pakistan, some armed with Pakistani national identity cards. The Taliban don't think they're putting anything past the ISI—"the black snake," as they call the agency. Mullah Shabir Ahmad, a provincial commander, spends upwards of six months of the year inside Pakistan. "The Pakistanis know what we eat for lunch and dinner," he says. Mullah Momin Ahmed, visiting his family in Quetta shortly before his death in September, agreed: "Pakistan knows everything about us, but it seems to ignore us." Maj. Gen. Waheed Arshad, the military's chief spokesman, says that Pakistani forces have arrested and deported 1,500 Taliban to Afghanistan, "but many somehow return."

Until now, most Pakistanis seem to have remained impervious to the jihadist threat, despite the evidence around them. Musharraf himself has seemed preoccupied with other matters. "He has failed to understand the danger of insurgency on both sides of the border, and how to bring the Pakistani people along with him to counter that threat," says retired Pakistani Army Lt. Gen. Talat Masood. "He has been too obsessed with perpetuating his power." Instead, according to Masood and other observers, the president has allowed Pakistanis to lull themselves into thinking that the battle against the jihadists is Musharraf's and America's problem, not theirs. "The greatest danger is that the whole Pakistani nation, including senior politicians, seems to be saying that this is not our watch, this is not our war," says Masood. "Even the Taliban presence in the cities seems to have an acceptance."

Few Pakistanis have any desire to live under the militants' rule. The trouble is, the country's moderate alternatives have become almost as unpopular. Musharraf won a third term as president by a unanimous Electoral Assembly vote on Oct. 6 (heavily boycotted by the opposition). In a recent nationwide poll by the International Republican Institute, however, he earned a dismal 21 percent approval rating. Bhutto fared little better, scoring a pitiful 28 percent. Many Pakistanis were appalled by her willingness to cut a deal with Musharraf so that he would allow her to return from exile.

True, the survey was taken before last week's attack. In the wake of the deadliest terrorist bombing in Pakistan's history, the public might rally once again to her support. "She won't be deterred," her husband told NEWSWEEK, describing Bhutto as "composed" in a phone call after the attack. "She won't be taken hostage by a small minority of people." But that minority of Islamists isn't so small any longer—and it's ready for a long war.

With Mark Hosenball in Washington, Zahid Hussain in Islamabad and staff reports