SCENARIOS: What outcome for Pakistan's battle in Swat?

ISLAMABAD (Reuters) - Pakistani soldiers closed in on a Taliban headquarters in the Swat valley on Tuesday, the military said.

The offensive in Swat, 130 km (80 miles) northwest of Islamabad, is seen as a test of the government's commitment to confront a growing Taliban insurgency.

Here are some possible outcomes of the fighting in Swat, once popular with tourists, where the military says about 15,000 members of the security forces face 5,000 militants.

QUICK SUCCESS

Army chief General Ashfaq Kayani said last week the army would "employ requisite resources to ensure a decisive ascendancy over the militants." A quick victory would allow the army to tackle militant strongholds on the Afghan border, such as North and South Waziristan, part of a region from where the Taliban orchestrate their Afghan war and where al Qaeda plots violence. Public opinion is behind the offensive and success would reassure many who are skeptical about the alliance with Washington. It would also boost unpopular President Asif Ali Zardari.

However, the Pakistani army has since its creation in 1947 focused on the threat from old rival India and critics say it is not trained or properly equipped for a counter-insurgency operation. That could make quick success a long-shot.

INCONCLUSIVE CAMPAIGN

The army has in the past relied on artillery and air strikes, which critics say invariably involves civilian casualties and alienates people. At least 360,000 people have left their homes and in all about 500,000 are expected to flee. They join about 600,000 people displaced earlier from Swat and other areas because of fighting since August.

The Taliban could melt away rather than fight, striking back with bomb attacks on military convoys, posts and camps. They can also be expected to step up attacks outside Swat to create diversions and undermine public support.

An inconclusive campaign with heavy civilian casualties would undercut public support and bolster critics who decry fighting "America's war." A frustrated United States could step up strikes on fighters by pilotless drone aircraft while the government might try a peace deal like the one that has just fallen apart. If history is a guide, this may be the most likely scenario.

A TALIBAN TAKEOVER?

No one expects the Taliban, fighting to impose their version of Islamist rule, to defeat the army militarily. But the fear is a failed offensive and surging militant violence could demoralize Pakistan to such an extent that authorities gradually cede power to militants in more areas through peace deals and inaction to stop bloodshed. Some analysts say this scenario, though unlikely, could lead to the collapse of the government and even the break-up of the state. That would raise the nightmare scenario of Pakistan's nuclear weapons falling into militant hands though both Pakistani and U.S. leaders say the weapons are safe.

REGIONAL SCENARIOS

Neighbors Afghanistan and India will welcome Pakistani action against militants. Both say militants from Pakistan are behind attacks on their countries and a Pakistani offensive can be expected to preoccupy the fighters at home.

But there's a danger militants might try to stage an attack in India to spark a confrontation between the nuclear-armed Neighbors. That would divert Pakistan's attention and resources to its eastern border, as happened after November's militant assault on the Indian city of Mumbai.

ECONOMIC RISKS

Pakistan's financial markets have to some extent become used to violence but a surge of bomb attacks in cities, especially the commercial capital Karachi, could undermine investor confidence just as inflation is easing and interest rates are coming down.

The United Nations and aid groups are helping those displaced by fighting since August, who number nearly 1 million, but the exodus puts an extra burden on an economy propped up by a $7.6 billion International Monetary Fund loan.

(Editing by Dean Yates)