ISLAMABAD - PAKISTAN denied Tuesday making concessions to militants after signing a deal allowing them to impose Islamic law in an area where government troops have failed to put down insurgency.

The United States, which puts South Asia on the frontline of the 'war on terror,' has branded extremists in northwest Pakistan a direct threat to the country, its neighbour Afghanistan, US security and other powers.

Analysts have derided the deal as a defeat that will embolden Islamists in the violent, nuclear-armed Muslim nation, but the government and pro-Taliban cleric Soofi Mohammad, who signed the deal, hailed it as a chance for peace.

Information Minister Sherry Rehman denied it was a 'concession.'

'It is in no way a sign of the state's weakness. The public will of the population of the Swat region is at the centre of all efforts and it should be taken into account while debating the merits of this agreement,' she said.

The government hopes that Islamist hardliners will now disarm in the Swat valley, where the deal will be implemented, and Rehman insisted President Asif Ali Zardari will only validate the agreement after peace has been established.

'The president will approve the Nizam-e-Adal Regulation after the restoration of peace in the region,' she said.

Radical leader Maulana Fazlullah has waged a nearly two-year campaign to enforce Taliban-style sharia law in the northwest Swat Valley, formerly a ski resort popular with Westerners.

Thousands of his followers have beheaded opponents, silenced detractors, bombed schools and outlawed entertainment, forcing tens of thousands to flee and trapping the Pakistan's military into an apparently unwinnable conflict.

On Monday, the government signed a deal with his father-in-law, considered more moderate, that accepts Islamic law as the only system of justice in the Malakand district, home to three million people and of which Swat is part.

A spokesman for the cleric, Amir Izzat, said Mohammad would hold talks with Fazlullah's men to disarm them, but said no schedule has been set.

Speaking in Tokyo, US Secretary of State Hillary Clinton said she needed to learn more about the issue before commenting on it, but warned that 'extremist elements in Pakistan pose a direct threat' to Pakistan and other countries. -- AFP