"You must understand," says Maulana Sami ul-Haq, "that Pakistan and Islam are synonymous." The principal of Darul Uloom Haqqania, a seminary in Pakistan's North-West Frontier Province (NWFP), is a tall and jovial man. He grabs my hand as he takes me round the seminary. Maulana ul-Haq laughs when I ask his views on jihad. "It is the duty of all Muslims to support those groups fighting against oppression," he says.

The Haqqania is one of the largest madrasas in Pakistan. It produces about 3,000 graduates, most from exceptionally poor backgrounds, every year. The walls of the student dormitory are decorated with tanks and Kalashnikovs. A group of students, all with black beards, white turbans and grey dresses, surrounds me. They are curious and extremely polite. We chat under the watchful eye of two officers from Pakistan's intelligence services. What would they do after they graduate, I ask. "Serve Islam," they reply in unison. "We will dedicate our lives to jihad."

Pakistan is reverberating with the call of jihad. For more than two months, the capital, Islamabad, has been held hostage by a group of burqa-clad women, armed with sticks and shouting: "Al-jihad, al-jihad." These female students belong to two madrasas attached to the Lal Masjid, a large mosque near one of the city's main supermarkets. I found the atmosphere around the masjid tense, with heavily armed police surrounding the building. Though the students were allowed to go in and out freely, no one else could enter the mosque. The women are demanding the imposition of sharia law and the instant abolition of all "dens of vice". Away from the masjid, Islamabad looked like a city under siege.

A new generation of militants is emerging in Pakistan. Although they are generally referred to as "Taliban", they are a recent phenomenon. The original Taliban, who ruled Afghanistan briefly during the 1990s, were Afghan fighters, a product of the Soviet invasion of their country. They were created and moulded by the Pakistani army, with the active support of the United States and Saudi money, and the deliberate use of madrasas to prop up religious leaders. Many Taliban leaders were educated at Haqqania by Maulana Sami ul-Haq. The new generation of militants are all Pakistani; they emerged after the US invasion of Afghanistan and represent a revolt against the government's support for the US. Mostly unemployed, not all of them are madrasa-educated. They are led by young mullahs who, unlike the original Taliban, are technology- and media-savvy, and are also influenced by various indigenous tribal nationalisms, honouring the tribal codes that govern social life in Pakistan's rural areas. "They are Taliban in the sense that they share the same ideology as the Taliban in Afghanistan," says Rahimullah Yusufzai, Peshawar-based columnist on the News. "But they are totally Pakistani, with a better understanding of how the world works." Their jihad is aimed not just at "infidels occupying Afghanistan", but also the "infidels" who are ruling and running Pakistan and maintaining the secular values of Pakistani society. "They aim at nothing less than to cleanse Pakistan and turn it into a pure Islamic state," says Rashed Rahman, executive editor of the Lahore-based Post newspaper.

The Pakistani Taliban now dominate the northern province of Waziristan, adjacent to Afghan istan. "They are de facto rulers of the province," says Yusufzai. Waziristan is a tribal area that has historically been ruled by the tribes themselves. Pakistan has followed the policy of British Raj in the region. The British allowed tribal leaders, known as maliks, semi-autonomous powers in exchange for loyalty to the crown. Pakistan gives them the same power but demands loyalty to the federal government. They have been sidelined by the Taliban, however. Pro-government maliks who resisted the onslaught of the Taliban have been brutally killed and had their bodies hung from poles as a lesson to others. The Taliban have declared Waziristan an "Islamic emirate" and are trying to establish a parallel administration, complete with sharia courts and tax system.

Taliban-type militias have also taken control of parts of the adjacent NWFP. In Peshawar, one of the most open and accessible areas of the province, one can feel the tension on the streets. There are hardly any women out in public. The city, which has suffered numerous suicide attacks, is crowded with intelligence officers. Within an hour of my arrival in Peshawar, I was approached by a secret service official who warned that I was being watched. It is practically impossible for outsiders to enter other NWFP towns such as Tank, Darra Adam Khel and Dera Ismail Khan. In Dera Ismail Khan, outsiders - that is, Pakistanis from other parts of the country - need police escorts to travel around. You are allowed in only if you can prove you have business or relatives there. Girls' schools have been closed, video and music shops bombed, and barbers forbidden from shaving beards. The religious parties have passed a public morality law that gives them powers to prosecute anyone who does not follow their strict moral code. Legislation to ban dance and music is being planned. Even administration of polio vaccination campaigns has been halted amid claims that it is a US plot to sterilise future generations.

Why is the ostensibly secular government of President Pervez Musharraf not taking any action against the Taliban militants and the parties that support them? Part of the answer lies in the militants and religious parties having served the military regime well. After coming to power in 1999, Musharraf used them to neutralise the mainstream political parties - Benazir Bhutto's People's Party and the Muslim League, led by Nawaz Sharif. "The military and mullahs have been traditional allies," says the Islamabad-based security analyst Dr Ayesha Siddiqa. "The alliance of religious parties that rules NWFP came into power through his support." Musharraf also used the religious militants to destabilise Indian-held Kashmir by proxy. He encouraged extremists preaching jihad to infiltrate India for acts of sabotage.

The same is true of the Taliban. The Afghan Taliban have been a useful ally against unfriendly governments in Kabul. Even though Musharraf has been forced to go against them under pressure from the Americans, his strategy has been to try to contain them, rather than defeat them. He tried to regulate the madrasas in NWFP and elsewhere in Pakistan that provide recruits for the Taliban, seized their funds and banned them from admitting foreign students. But that's about as far as he wanted to go. Constant US pressure has forced him to send in the army, with grave consequences. Every time the Pakistani army enters Waziristan, it takes heavy casualties. Since 2003, when Pakistani troops first entered the tribal regions, more than 700 soldiers have been killed. Not surprisingly, Musharraf signed a hasty peace agreement on 5 September 2006 allowing the Afghan Taliban to get on with their business. "The military regards the Taliban as an asset," says Siddiqa. "So why destroy an asset? Particularly when the asset could be useful in the future."

That future may not be too far off. Pakistan's foreign policy towards Afghanistan is based on the assumption that the Nato forces there will withdraw sooner rather than later, leaving Hamid Karzai's regime to fend for itself. The Karzai government is strongly anti-Pakistani. But the Pakistani army needs friendly rulers in Kabul who would be willing to run the oil and gas pipelines that will serve the newly established port at Gwadar through Afghanistan's provinces (see page 32). So Pakistan needs the Afghan Taliban to exist as a force strong enough to establish the next government in Afghanistan.

Moreover, a pro-Islamabad Taliban-type government in Afghanistan would help establish peace in the northern tribal regions of Pakistan. Although Karzai himself is a Pashtun, most of the people in power in Kabul are Tajiks, a minority tribe. A sizeable majority of Afghans belong to the Pashtun ethnic group, which ruled Afghanistan for centuries. The position of Pakistan's military is that this imbalance "against the political history and tribal culture of Afghan istan", as one army officer told me, is not going to last. Most of the Pakistani Taliban - that is, the vast majority of people in Waziristan - are also Pashtun. And they will not rest until their brothers across the border hold the reins of power. As such, peace in this part of Pakistan depends on who rules Afghanistan.

Musharraf's strategy is to contain the Taliban of Afghan and Pakistani varieties alike, while weeding out al-Qaeda jihadis, or "foreign elements", as they are known in Pakistani military circles. The foreigners are a legacy of the Soviet-Afghan war. When the war ended, many of the central Asians who came to fight the Soviets were not welcomed back in their countries. For want of an alternative, they settled in Pakistan. Most of these foreign jihadis are Uzbek. Musharraf has simply bribed the local tribes to attack and eradicate the Uzbek jihadis. The battle between Pashtun tribesmen and al-Qaeda in Wana, southern Waziristan, in which more than 200 al-Qaeda fighters and some 50 tribal fighters were killed a fortnight ago was a product of this policy.

Musharraf's problem is that the Taliban cannot be contained. The Pakistani Taliban have now acquired enough confidence to break out of Wazi ristan and NWFP into other parts of the country. "What's happening at the Lal Masjid in Islamabad is a trial run for the rest of the country," says Rahman. "If the Taliban succeed in Islamabad, they will turn Pakistan into Talibistan."

Lawyers in uproar

While Musharraf continues to placate the Taliban, the rest of Pakistan is standing up against Talibanisation. Huge demonstrations have been held in Lahore, Karachi and other cities throughout Pakistan. To begin with, the protests were held to support Chief Justice Iftikhar Moham med Chaudhry, who was sacked by Musharraf in March. Chaudhry, who has become a national hero, tried to prevent the army from selling the national steel mill for a song. The affair was the latest in a long list of scandals involving the military. The openly unconstitutional act caused uproar, leading to countrywide protests by lawyers. But the lawyers have now acquired a broader agenda. They have become a national resistance movement, supported by all sections of society, against military rule and the Taliban.

Musharraf's response to the demonstrations and the Taliban challenge is to try to entrench himself even more deeply. While the country buckles under the pressure of suicide bombings, kidnappings and acts of sabotage, his main concern is his own survival. Constitutionally, he must hold elections some time this year - something he has promised to do, but the whole exercise will be designed to ensure that he continues as president for another five years.

His plan to get "re-elected" has two strands. The simple option is to get the current hand-picked parliament to endorse him for a second term and try to manipulate this vote, which the present sham constitution dictates, to ensure a healthy two-thirds majority. The heads of intelligence, the security services and the police have already been primed to ensure "positive results".

Bhutto to the rescue?

The other option is a bit messy. It involves making a deal with the former prime minister Benazir Bhutto, head of the Pakistan People's Party. Bhutto, who has been ousted from power by the military twice, is desperate to get back into power. She has a great deal in common with the general. She runs the People's Party as her personal property, and her social and economic policies - rooted as they are in feudalism and opportunism - are not far removed from those of the army. Her foreign policy would be the same as that of Musharraf; indeed, she is even more pro-American than the general.

So Bhutto and Musharraf, who have been negotiating with each other for almost three years, are an ideal couple. "The problem," says Rahman, "is that Musharraf does not want to give up his military uniform. It is the source of his strength. And the idea of Musharraf remaining military chief is anathema to Bhutto."

But the state of the nation, on the verge of political and religious collapse, may force Musharraf's hand. A deal between the general and the self-proclaimed "Daughter of the East" in which Musharraf retains most of his power as civilian president and Bhutto serves as prime minister may be acceptable to both. Rumours abound in Islamabad that a deal is imminent.

Bhutto's return from the cold would do little to stop Pakistan's slide into anarchy, however. The Taliban sense victory and will not be easily satisfied with anything less than a Pakistan under sharia law, or wide-ranging bloodshed. As Asma Jahangir, chairwoman of Pakistan's Human Rights Commission, makes clear, the country cannot survive its "deep-seated rot" unless the "unrepresentative organs of the state - the military, the mullahs and the all-consuming intelligence agencies - are brought under control". It is hard to disagree with her assessment. But it is even harder to see how these "unrepresen tative organs" can be stopped from dragging Pakistan further towards the abyss - with dire consequences for the rest of the world.

Pakistan: a short history

1947 Muslim state of Pakistan created by partition of India at the end of British rule

1948 First war with India over disputed territory of Kashmir

1965 Second war with India over Kashmir

1971 East Pakistan attempts to secede, triggering civil war. Third war between Pakistan and India. East Pakistan breaks away to become Bangladesh

1980 US pledges military assistance following Soviet intervention in Afghanistan

1988 Benazir Bhutto elected prime minister

1996 Bhutto dismissed, for the second time, on charges of corruption

1998 Country conducts nuclear tests

1999 General Pervez Musharraf seizes power in military coup

2001 Musharraf backs US in war on terror and supports invasion of Afghanistan

2002 Musharraf given another five years in office in criticised referendum

2003 Pakistan declares latest Kashmir ceasefire. India does likewise

2004 Musharraf stays head of army, having promised in 2003 to relinquish role

2005 Earthquake in Pakistan-administered Kashmir kills tens of thousands of people

2007 Musharraf suspends Chief Justice Iftikhar Mohammed Chaudhry, triggering nationwide protests

Read more from our Pakistan special issue here