The Washington Post is reporting that the Pakistani government has signed a peace treaty with the Taliban who have been operating in the mountainous tribal areas along the border with Afghanistan:

The government of Pakistan signed a peace accord Tuesday with pro-Taliban forces in the volatile tribal areas bordering Afghanistan, agreeing to withdraw its troops from the region in return for the fighters’ pledge to stop attacks inside Pakistan and across the border.

Under the pact, foreign fighters would have to leave North Waziristan or live peaceable lives if they remained. The militias would not set up a “parallel” government administration.

Reached as Pakistan’s president, Gen. Pervez Musharraf, prepared to visit the Afghan capital Wednesday, the accord aroused alarm among some analysts in Afghanistan. They expressed concern that, whatever the militias promise, a Pakistani army withdrawal might backfire, emboldening the groups to operate more freely in Pakistan and to infiltrate more aggressively into Afghanistan to fight U.S. and allied forces there.

“This could be a very dangerous development,” said one official at an international agency, speaking anonymously because the issue is sensitive in both countries. “Until recently there has been relative stability in eastern Afghanistan, but now that could start to deteriorate.”

Obviously this is very bad news. The Taliban will likely honor the agreement in the breach which means that for all intents and purposes, they have a protected area to flee following their operations against NATO forces in Afghanistan. And even more problematically, it almost certainly means an increased troop committment will be necessary by NATO - if the Europeans are willing to pony up the men and material in an effort to combat the two headed monster of the Taliban resurgence and opium warlords who have doubled poppy production this year.

Can it get worse?

Osama bin Laden, America’s most wanted man, will not face capture in Pakistan if he agrees to lead a “peaceful life,” Pakistani officials tell ABC News.

The surprising announcement comes as Pakistani army officials announced they were pulling their troops out of the North Waziristan region as part of a “peace deal” with the Taliban.

If he is in Pakistan, bin Laden “would not be taken into custody,” Major General Shaukat Sultan Khan told ABC News in a telephone interview, “as long as one is being like a peaceful citizen.”

This is what has most of the blogosphere wagging their tongues about this morning. But it important to remember that 1) No one knows where Bin Laden is; and 2) There is a better chance he is actually in Afghanistan than Pakistan although with this “peace agreement” that may change.

Bin Laden is the least of our worries right now. How to recover from this devastating blow – some might call it a betrayal – delivered by an erstwhile ally should be the focus of American policy makers as they scramble to assess what it all means and develop a counter strategy that will salvage something of our relationship with Musharraf as well as satisfy the Afghan government that must be going ballistic right about now.

Musharraf is scheduled to head for Kabul today for talks with Karazai. I will be very surprised if these meetings take place as scheduled and if they do – wouldn’t you like to be a fly on the wall when those two get together?

The agreement could add a new element of tension to Musharraf’s visit, aimed at smoothing over his relations with Afghan President Hamid Karzai. The two Muslim leaders, both allies in the U.S.-led war against Islamic extremists, have clashed heatedly over allegations that Taliban forces in Afghanistan are receiving support and shelter from inside Pakistan.

Pakistan’s move also appeared to complicate the U.S. role in the region. U.S. officials have praised Musharraf for his help in capturing al-Qaeda members and refrained from pressing him hard on cross-border violence. A withdrawal of Pakistani forces could reduce pressure on al-Qaeda figures believed to be hiding in the region, including Osama bin Laden, allowing them more freedom of action.

What possessed Musharraf to make this Faustian bargain in the first place?

The death of a Baluchistan rebel leader may have roiled Musharraf’s government and endangered his hold on power to the point that he felt he had little choice:

ISI’s (Pakistan’s CIA-FBI agency) latest successful assignment was to locate Nawab Akbar Khan Bugti, an aristocratic octogenarian tribal chief and leader of Baluchistan’s fourth insurgency in the last 70 years, this time to get a fair share of massive gas and mineral deposits. Government troops attacked the cave where this former Cabinet minister was hunkered down. An artillery shell buried him alive. ISI has yet to locate bin Laden, widely believed headquartered in Pakistan’s FATA, protected by fiercely loyal tribes that are clearly disinterested in a $25 million U.S. reward.

The Aug. 26 blunder sparked violent protests and shut down most of the country in a general strike to protest Bugti’s “assassination.” Even retired generals called on President-Gen. Pervez Musharraf to take the army out of politics and return Pakistan to civilian rule.

The Baluchistan rebellion predates the partition with India and has been marked by struggles to control the natural resources in the area as well as brutal suppression by the Pakistani government of the Baluchi tribal system and culture. The nearby province of North Waziristan also has restless tribal minorities who resent the control of the Pakistani government by the military, most of whose leaders hail from the country’s largest province of Punjab.

The death of the powerful Baluchi leader Bugti and subsequent nationwide unrest may have backed Musharraf into a corner with both his own military supporters and the shadowy elements of the ISI who created the Taliban in the first place. By making “peace” with the Taliban, Musharaf frees up several thousand Pakistani soldiers and quiets the rumblings of discontent coming from the ISI - a good move if one has a finely honed instinct for self preservation. And by proving that he’s flexible with one tribal headache, he may showing the Baluchis that talking to Islamabad is the best way to get what they want as opposed to continuing their rebellion.

This doesn’t explain Musharraf’s seeming diffidence toward the United States whose $2 billion a year in aid has been supplemented with generous loans from the IMF as well as debt reduction totaling more than $1 billion. The cutoff of US assistance to his military and economy would be a devastating blow to Musharraf’s rule and could cause him even more domestic problems. Is he taking a calculated risk that our anger at the Taliban deal will be tempered by the realization that he is the indispensable anti-terror man in the region?

Allies in the War on Terror are growing scarce. And our recent setbacks in Iraq as well as what some analysts see as a loss of American prestige and the myth of our invincibility may be contributing to Musharaf’s calculated risk in dealing with the Taliban. At the same time, Musharraf must realize he is still extremely valuable to our intelligence efforts in the War on Terror. His recent assistance in the British investigation of the liquid bomb plot in tipping off the Brits to some of the terrorists involved proves that we may not be able to get along without him.

So while we may express our extreme displeasure at Musharraf for this action, do not expect a reduction in aid or any other serious sanction against him. At the moment, he is still a powerful and valuable ally in the War on Terror and will remain so for the foreseeable future.

UPDATE

There is immense confusion over what this deal actually means. Is it with the Taliban? Or is it with tribal leaders who support the Taliban and al-Qaeda?

My take may be wildly off base here if what Ed Morrissey says is true:

However, it does appear that the two agreements add up to something other than an abject surrender. It seems more likely that Hamid Karzai would reject any such sanctuary for Taliban fighters, not embrace it and embrace Musharraf after allowing that to develop. After all, a free reign in Waziristan would allow the Islamists to gather their strength and attack in force. Karzai does not want Musharraf’s friendship so desperately that he would commit suicide for it, nor does Musharraf have any particular love of the radicals that have twice tried to assassinate him.

Musharraf wants to visit Karzai to put a coordinated plan for security in the cross-border region. That makes it look much more like Musharraf bought the cooperation of local tribes in an effort to flush out the foreign fighters exploiting the territory. That deal did include compensation—the region has a tradition of blood money—for lost relatives in earlier fighting. Musharraf wants the tribes out of the way so that the combined forces of Pakistan and Afghanistan—which means Pakistan and NATO —can attack the Taliban and their foreign terrorist supporters.

The problem with Ed’s otherwise excellent analysis is that it appears Karzai has been blindsided by the agreement, if the WaPo story can be believed:

The agreement could add a new element of tension to Musharraf’s visit, aimed at smoothing over his relations with Afghan President Hamid Karzai. The two Muslim leaders, both allies in the U.S.-led war against Islamic extremists, have clashed heatedly over allegations that Taliban forces in Afghanistan are receiving support and shelter from inside Pakistan.

Pakistan’s move also appeared to complicate the U.S. role in the region. U.S. officials have praised Musharraf for his help in capturing al-Qaeda members and refrained from pressing him hard on cross-border violence. A withdrawal of Pakistani forces could reduce pressure on al-Qaeda figures believed to be hiding in the region, including Osama bin Laden, allowing them more freedom of action.

Stay tuned for updates on this story. As the dust settles, I’ll have further analysis.