Musharraf to step down as army chief, Bhutto says

LONDON -- Pakistan's President Gen. Pervez Musharraf has agreed to step down as army chief, exiled Prime Minister Benazhir Bhutto said Wednesday, a move that would be a key step toward a power-sharing deal aimed at rescuing the U.S. ally's bid for another presidential term.

Bhutto, who is expected to return to her homeland and contest parliamentary elections due by January, also said corruption charges would be dropped against her and dozens of other politicians as part of ongoing negotiations to restore civilian rule.

Musharraf and Bhutto have been in talks for months about a pact that would protect the general's re-election bid from legal challenges and public disenchantment with military rule.

"We're very pleased that Gen. Musharraf has taken the decision to listen to the people of Pakistan by taking the decision to take off the uniform," Bhutto said. "I expect that he will step down (as army chief) before the presidential elections, but that is for the president to say."

There was no immediate reaction from Musharraf. Earlier, a Musharraf ally, Railways Minister Sheikh Rashid Ahmed, confirmed the two sides had reached agreement on Musharraf's military role. "Both sides have agreed on the issue of uniform," he said.

Ahmed also said it was possible Musharraf would step down as army chief before the presidential vote but only "he knows the date and she (Bhutto) knows the date."

Bhutto and other opposition leaders argue the constitution obliges Musharraf, who seized power in a 1999 coup, to give up his post as military chief before he asks lawmakers for a fresh mandate in September or October.

Musharraf has said the constitution allows him to be army chief until the end of 2007. He has not said what will happen afterward.

A remaining stumbling block in a power-sharing deal is the balance between the parliament and the president, who now has the authority to dismiss the prime minister and dissolve the legislature.

In Washington, State Department spokesman Tom Casey would not comment on reports of progress toward a deal, but said, "Our principal concern in Pakistan is that there be free, fair and transparent elections."

Bhutto said she hoped for a breakthrough "in the next few days" and that Musharraf's silence on his decision to step down as military chief "could be a tactical rather that strategic retreat" until all issues have been resolved.

"Time is running out," she said, warning that a breakdown in talks could spark street protests in Pakistan.

Musharraf has seen his authority erode since March, when he tried unsuccessfully to remove the Supreme Court's top judge, triggering protests that grew into a broad campaign against his rule.

The court reinstated the judge in July, raising expectations that it will uphold legal challenges to Musharraf's re-election.

Just last week, the court ruled that Nawaz Sharif, the prime minister Musharraf toppled in 1999, can return to Pakistan ahead of parliamentary elections. Sharif quickly denounced Musharraf as a dictator and said he must be removed from the political scene.

In an interview published in Wednesday's Financial Times, Sharif said he would return before the start of the Islamic holy month of Ramadan in mid-September. Government threats to arrest him on old charges would strengthen his support, he said.

"Today the people, civil society, the judiciary, the political forces and the media are on one side, and the dictator and his shrinking support are on the other side," Sharif was quoted as saying. He said he felt "let down by the United States," which he has accused of confusing Musharraf's interests with those of Pakistan.

Musharraf urged Sharif on Wednesday to abide by an agreement he signed in 2000 to spend a decade in exile. Sharif should "show character and not violate the agreement," the president said.

The prospect of Sharif's return has added to the urgency of an accommodation between Musharraf and Bhutto, who share a relatively liberal, pro-Western outlook and stress the need to prevent the political crisis from destabilizing the nuclear-armed nation.

Musharraf had vowed to prevent either former leader from re-entering Pakistan. He blames them for the corruption and economic problems that nearly bankrupted the country in the 1990s, when Bhutto and Sharif each had two short-lived turns as prime minister.

Bhutto told the AP that dropping corruption charges against her was another hurdle that had been cleared. A power-sharing deal is also expected to lift constitutional barriers that could clear the way for Bhutto to become prime minister again.

"There has been progress on this issue of dropping the charges -- not just against me but against some 80 other parliamentarians," she said. "These charges were never proven and there has been an agreement that this is needed for reconciliation and to move forward. This is another point that has been agreed on."

With the United States pressing for more democracy as well as a redoubled effort against al-Qaida and Taliban militants, Musharraf recently began calling for political reconciliation with Bhutto and an alliance of moderates to defeat extremists.

Fighting terrorism is in everyone's interests, Bhutto said.

"The U.S. would have a lot to gain in the democratization of Pakistan, which is armed with nuclear weapons and in danger of becoming a failed state," she said. "We have been briefing the U.S. on a regular basis."

Bhutto said Musharraf was key to lasting reforms.

"It's better to deal with someone who you know could complete these reforms," Bhutto said. "If he agrees to the reforms, he will go down in history as a military leader different than the rest."

Bhutto -- daughter of Pakistan's former president and prime minister Zulfikar Ali Bhutto, who was overthrown by the military and hanged in 1979 -- would not say when she last spoke to Musharraf.

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Associated Press correspondent Stephen Graham in Islamabad, Pakistan, contributed to this report.