by Ron Moreau and Zahid Hussain, with Daniel Klaidman, Mark Hosenball and Nisid Hajari
Newsweek
March 11, 2002

Sometimes it seems like the only person telling the truth in the Daniel Pearl case is the man accused of kidnapping The Wall Street Journal reporter. After turning himself in on Feb. 5, Ahmed Omar Saeed Sheikh, 28, told agents from Pakistan's powerful Inter-Services Intelligence (ISI) that Pearl's captors had sent him a coded message saying the American had been executed. The ISI, NEWSWEEK has learned, chose not to mention that to Pakistani President Pervez Musharraf, saying instead that Pearl would be rescued shortly. For his part, Musharraf didn't publicly admit that Saeed was in custody until a week later, when at a press conference in Washington he said he was "reasonably certain" Pearl was alive.

In fact, that missing week may have sabotaged the investigation by giving Pearl's killers time to disappear. "The ISI never shared with us any information about what Saeed had told them," says a senior Pakistani police investigator. Equally worrying is what the deception says about Musharraf's dependence on the ISI. The president personally brought the spies into the Pearl investigation for the same reason he's enlisting them in his crackdown on Muslim militant groups: the ISI has long maintained links to extremist organizations like Saeed's Jaish-e-Mohammad, which have carried out attacks on Indian forces in Kashmir. For Musharraf, the factors that make the ISI valuable are the same ones that make it suspect. "He is p----d off and embarrassed," says a former senior government minister close to the regime. "But what can he do?" The ISI has been so powerful for so long that it seems to play by its own rules."

In the Pearl case, the ISI may have had mixed motives. According to well-informed Pakistanis, ISI agents were confident they could cut a deal for Pearl's release by offering to let Saeed go in return. U.S. authorities believe Saeed himself was an ISI asset at one point, most likely an operative in Kashmir. (Pakistani authorities deny Saeed had any official connections.) The ISI would have had good reason not to "burn" one of its former contacts: "That could send a message to other present and future intelligence assets that the ISI doesn't protect its own," says another former government official. "The ISI always wants to keep its options open."

Even in custody, Saeed seems confident, even cocky. According to a senior U.S. law-enforcement official, the militant bragged to FBI agents that he would never be extradited to the United States, and in fact would serve only three or four years if convicted of Pearl's murder in Pakistan. The only remorse he expressed was over Pearl's unborn child: "He said he felt bad because he realized Pearl was going to be a father soon, and he had a 2-month-old son," says the American official.

Musharraf has tried to rein in his intelligence organization, but with mixed results. U.S. intelligence sources say that while the Pakistani president has generally been in the loop on Saeed's handling, rogue elements within the ISI may still exist. For years the agency has run semi-independent operations in Afghanistan and Kashmir, and has also helped to form and topple civilian governments in Pakistan. In recent months the ISI has obeyed Musharraf's order to reverse policy on Afghanistan. A senior officer even claims that ISI agents- who helped fuel the Taliban's rise to power - were instrumental in the arrest of 254 of the 300 al-Qaeda and Taliban fighters and officials now being held at a U.S. military base in Cuba.

Yet Kashmir presents a thornier dilemma. Musharraf has ordered the agency to cut off contact with Pakistan-based insurgents that have battled Indian forces in the disputed region. Bu the cause is a very potent issue for nationalists of all stripes, not least of all the president himself. And the ISI's interest in trading Saeed for Pearl could indicate that sympathy for those groups continues to permeate the agency. That puts Musharraf in an especially precarious position. The Kashmiri militants are among the most violent in Pakistan, and India remains suspicious enough to keep several hundred thousand troops stationed along the border, waiting to see if fighters begin to cross into Kashmir once the winter snows melt. If the Pakistani president continues to trust his spies, he may be in for more unpleasant surprises.

© 2002 Newsweek, Inc.

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