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ISLAMABAD, July 6 (Reuters) - For a world hoping democracy will provide the stability nuclear-armed Pakistan needs to save it from Islamist militants and chaos, the first 100 days of the new civilian government haven't been very reassuring.
The transition, after eight years of military-led rule under President Pervez Musharraf, an important U.S. ally in its war on terrorism, is happening at the worst of times.
Asif Ali Zardari is struggling to fill the void left by the assassination in December of his wife, the charismatic two-time prime minister Benazir Bhutto, whose party won the election in February and took the reins of government on March 29.
There are fears within their Pakistan People's Party (PPP) that Zardari has chosen a losing path in a three-way power struggle with Musharraf and old rival Nawaz Sharif, the prime minister Musharraf overthrew.
Although Musharraf has so far resisted calls for his resignation, he could quit in coming months, just as the Bush presidency that has helped prop him up draws to a close.
Once that happens, most analysts reckon the last vestiges of a post-election alliance between Zardari and Sharif will disappear and Pakistan will enter a fresh phase of instability.
"It is distracting the government from focusing on some grave challenges, the economic challenges, but mostly this challenge from pro-Taliban militants," said Lisa Curtis, a South Asia analyst at the Heritage Foundation in Washington.
IN A MISERABLE STATE
Militants have extended influence over large swathes of the northwest, alarming Western allies suffering rising casualty rates in Afghanistan due to the flow of fighters from Pakistan.
The West is also uneasy with the new government seeking peace deals with militants, due to fears al Qaeda is plotting attacks in Europe and North America from sanctuaries in Pakistan.
But there is speculation a crackdown on militants in the Khyber tribal region on the outskirts of the northwestern city of Peshawar could be a forerunner to stronger action against more dangerous factions in Waziristan and Swat.
General Ashfaq Kayani, who replaced Musharraf as army chief last November, apprised civilian leaders of the scale of the militant threat, and pledged to take orders from them, while keeping authority to determine the type and size of force used.
The politicians will have to weigh risks of provoking another wave of suicide attacks by militants whose bombers killed hundreds of people across Pakistan after the army stormed Islamabad's Red Mosque to crush an armed movement last July.
Urgent action is also needed to steer Pakistan's fast growing economy away from the rocks, and the government is seeking to borrow billions from allies and multilateral lenders.
Inflation is running at over 20 percent, the rupee is at all-time lows, currency reserves are rapidly dwindling, and the stock market is in intensive care with a ban on short selling and a daily limit set to allow it to fall no more than 1 percent.
Electricity cuts of several hours a day are the norm across Pakistan, due to the failure to build new power plants.
Looming over everything else is a constitutional crisis resulting from Musharraf's use of emergency powers last November to purge the Supreme Court of judges who might have ruled illegal his re-election by a pliant outgoing parliament in October.
LOST IN TRANSITION?
The defeat of Musharraf's allies in February's election left him vulnerable to attack from the new parliament, but none came.
Instead cracks occured in the coalition. Sharif pulled his party out, because Zardari broke a promise to swiftly reinstate judges who could have provided a short-cut to ousting Musharraf.
By backtracking, Zardari squandered goodwill, lost trust, and left people guessing his intentions.
Zardari hasn't stood for election and remains outside the orbit of the parliament. He guides his nominee Prime Minister Yousaf Raza Gilani from behind the scenes, and they are often accused of leaving coalition partners in the dark. "It's not so important to be popular. But it's very important to be credible and meet some aspirations of the people," said Talat Masood, a retired general turned analyst.
Masood also believes Zardari will fail to win people's support for the war on terrorism unless he keeps the religiously conservative Sharif on board to sell the policy to the people of Punjab, Pakistan's richest and most populous province.
Zardari's hesitancy over reinstating the judges stems from fear some are pro-Sharif and once Musharraf is dealt with they could come after him by reviving corruption cases he has already spent years in jail for without ever being convicted.
Bush's support for Musharraf has also constrained Zardari, who sees U.S. backing as crucial to Pakistan's future.
Analysts say the United States and the Pakistani army would prefer Musharraf to stay put at least until the civilians show they can run the country and carry the fight against terrorism.
Zardari has tried to buy time by proposing a constitutional package that will reduce Musharraf to a figurehead role, and de-fang the judiciary to protect himself.
Critics have accused Zardari of letting drift set in when the government should be in overdrive to tackle the crises. Less harsh judges see a difference between drift and transition.
Even dictators have struggled to manage Pakistan, as the Muslim nation reeled from crisis to crisis during the 61 years since its formation out of India's partition in 1947.
"We've got to hold our breath," said Stephen Cohen, a South Asia analyst at the Brookings Institution in Washington.
"I would give this new government a considerable period of time, much longer than 100 days, to get themselves organised." (With additional reporting by Paul Eckert in Washington)
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