Slain ex-prime minister Benazir Bhutto's party will lead the coalition after winning the most seats in elections in February, with the grouping of former premier Nawaz Sharif, whom Mr Musharraf ousted in 1999, as junior partner.

Former general Musharraf faces a fight for his political survival after his backers were trounced at the polls, with voters showing their anger over growing Islamic militancy and a host of economic problems.

'This is the last day of dictatorship,' Ms Bhutto's widower Asif Ali Zardari told reporters after meeting Sharif in the parliament building.

'This is our first step. We have conveyed a message to the world community to support democracy which defeats dictatorship,' Mr Zardari added.

Mr Sharif said that the coalition's strategy was 'very clear - our agenda is democracy versus dictatorship. It has to end, it has to be defeated.'

The session began with members of the 342-seat national assembly standing to attention, before a cleric recited passages from the Koran, the Muslim holy book, reporters said.

Neither Mr Zardari nor Sharif actually has seats in the assembly and both had to watch the ceremony from the gallery.

Security was tight for the inauguration of the new parliament, following a bombing targeting foreigners at an Islamabad restaurant on Saturday that left a Turkish woman dead and several western diplomats hurt.

Politicians are also at risk following the assassination of Bhutto in a gun and suicide attack at an election rally on Dec 27 in the garrison city of Rawalpindi, which adjoins the capital.

An announcement on the country's new prime minister is expected later this week.

Mr Zardari is slated to take the post but will need to contest a by-election to become eligible.

Both Mr Zardari and Mr Sharif avoided questions about the issue.

The parliament is meeting with Mr Musharraf's popularity at an all-time low, and with his power already weakened by his resignation as army chief in November. His successor has vowed to keep the army out of politics.

The biggest threat facing Mr Musharraf from the Ms Bhutto and Mr Sharif parties is their pledge to restore some 60 judges whom Mr Musharraf sacked in November under a state of emergency.

Mr Musharraf deposed his arch-foe, chief justice Iftikhar Muhammad Chaudhry, and the other judges to ward off legal challenges to his re-election as president by the outgoing loyalist parliament in October.

But if the judges are restored, the Supreme Court could overturn Mr Musharraf's re-election.

Mr Sharif has hinted that parliament could pursue the president's impeachment.

But analysts say the former commando, who is central to Washington's 'war on terror' against Al-Qaeda and the Taleban, appears to be ready to battle for his position.

Mr Musharraf, who has repeatedly rebuffed calls to quit as president, said in a television interview shown late Sunday that 'we have to run a democratic system. We are not a dictatorship, the system must function.'

But in an apparent swipe at Mr Sharif and Ms Bhutto's parties, he said Pakistan's recent problems and the need for him to stay in power were due to a 'vacuum of proper leadership.'

Analysts say Mr Musharraf could seek to fuel old rivalries between Ms Bhutto's Pakistan People's Party and Mr Sharif's Pakistan Muslim League-N.

The parties were at each others' throats in the 1990s as they twice swapped periods in power.

A row is also brewing over the premiership.

Ms Bhutto loyalist and PPP vice-president Makhdoom Amin Fahim had been the prime contender, but party officials say Mr Zardari now wants the post himself. -- AFP