Pakistan puts move to rein in spies on ice

ISLAMABAD (Reuters) - Pakistan's 4-month-old civilian government has suspended a decree issued last month to put the military's powerful and controversial spy agency under Interior Ministry control, according to an official statement.

Feared by neighboring Afghanistan and India, and reportedly mistrusted by the United States despite its help fighting al Qaeda, the Inter-Services Intelligence (ISI) agency also has a reputation for destabilizing past civilian governments.

Late last month the government issued a decree putting the ISI and its civilian cousin, the Intelligence Bureau, under the purview of the Interior Ministry.

The government rolled back a day later by saying the move had been "misinterpreted". Without withdrawing the decree, it said a new, more detailed one would follow.

Late on Tuesday, it issued a statement saying the July 26 decree was now held in "abeyance", pending consultations with various branches of Pakistan's intelligence network.

"The Prime Minister is pleased to direct that the federal government will carry out further deliberation on coordinating the intelligence efforts," the statement said.

The flip-flop has caused further disillusion with Prime Minister Yousaf Raza Gilani's government, at a time when there are mounting doubts about its ability to handle multiple crises.

Those include raging inflation, plunging markets, food and fuel shortages, and rising militancy in the country's rugged and restive northwest.

The clumsy move to rein in the ISI had caused an uproar among senior ranks in the army, at a delicate stage in a return to civilian rule for a Muslim nation led by generals more than half the time since it was formed out of India's partition in 1947.

There is strong speculation coalition party leaders Asif Ali Zardari and Nawaz Sharif could agree imminently to seek the impeachment of President Pervez Musharraf, who came to power in a coup in 1999.

Musharraf, who has been a key ally of the United States in its war against terrorism, stepped down as army chief last November, and promoted General Ashfaq Kayani, who had been head of the ISI, to succeed himself.

The current ISI chief, Lieutenant-General Nadeem Taj, was also chosen by Musharraf.

To add to the intrigue, American mistrust of the ISI surfaced last week after the New York Times reported U.S. officials had accused some ISI agents of collaborating with militants with known links to al Qaeda based in Pakistani tribal areas.

It also reported the United States backed Indian and Afghan allegations ISI agents were involved in a suicide car bomb attack outside the Indian embassy in Kabul on July 7.

That attack killed 58 people, including two senior Indian diplomats.

Gilani's government denies the accusations.

While under law the ISI ultimately reports to the prime minister, the military directs its operations.

Musharraf has had to defend the ISI several times in the past from accusations the spy agency, which had helped create the Taliban militia that took over Afghanistan during the mid-1990s, was playing a double game despite joining Washington's war on terrorism after al Qaeda's 2001 attacks on the United States.

(Writing by Simon Cameron-Moore; Editing by Jerry Norton)