By Mark Hosenball
WASHINGTON (Reuters) - A summit of spymasters this week eased tensions but failed to resolve issues over U.S. drones and espionage that have imperiled the vital relationship between the CIA and Pakistan's main intelligence agency.
The United States and Pakistan have an uneasy alliance as U.S. soldiers fight the Taliban in neighboring Afghanistan and the fragile government in Islamabad faces internal threats from Islamist militants and anti-American sentiment.
The case of a CIA contractor who killed two Pakistanis sent anger boiling and threatened the CIA's campaign of aerial drone strikes against militants hiding in Pakistan's tribal areas.
The U.S. spy agency is willing to expand consultations with Pakistan over drone operations, U.S. officials told Reuters after CIA Director Leon Panetta hosted Lieutenant General Ahmed Shuja Pasha, chief of the Inter-Services Intelligence agency.
But demands by some Pakistani officials for sharp cuts in drone attacks are unacceptable, the officials said, as are suggestions the United States should return to a Bush-era policy limiting the strikes to "high-value" militant targets.
"Panetta has an obligation to protect the American people and he isn't going to call an end to any operations that support that objective," one U.S. official said.
Despite public protestations by Islamabad about the drone strikes, Pakistan hopes the United States will move ahead with long-stalled plans to supply a fleet of the remotely piloted aircraft, according to a source familiar with its wish-list.
U.S. officials also worry that Islamabad has been slowing routine rotations of American personnel, including spies, diplomats and military trainers, which could become a serious drag on routine and secret U.S. activities in the region.
The issue of U.S. personnel levels in Pakistan -- a Muslim nation with nuclear arms and a history of conflict with India -- was discussed during Pasha's visit, one U.S. official said.
The meeting between Panetta and Pasha was a relatively brief but the CIA said it was productive.
"We have a strong relationship with our Pakistani counterparts and we work through concerns when they arise," CIA spokesman George Little said. "That's the nature of a solid partnership."
Privately, officials said the meeting showed an improvement in relations from earlier this year, when U.S. authorities were enraged by the jailing of CIA contractor Raymond Davis after he shot two Pakistani men who he said were trying to rob him.
Davis, who Washington said should have been given diplomatic immunity, was released after compensation was paid to the families of the men he killed.
In the wake of the case, media reports quoted Pakistani intelligence sources as saying the ISI wanted drastic concessions from Washington.
But U.S. officials said many of the sharpest demands floated by the Pakistani sources were never raised by Pasha and that he and Panetta have a good personal rapport.
Some U.S. officials say Pakistan's recent vitriol about CIA activities may be largely posturing -- a ploy to extract more financial and military aid from the United States. But the issue of drones remains a sore point.
After the September 11 attacks in 2001, when the administration of President George W. Bush authorized the CIA to use drones to kill suspected militants, the rules of engagement were tight.
The CIA was allowed to fire drone-borne missiles only if it was confident of the whereabouts of a senior militant. Under those rules, drone strikes were rare and, according to Pakistani sources, routinely cleared in advance.
In the summer of 2008, Bush relaxed the rules. Potential targets were expanded to include suspected encampments of "foreign fighters" -- a broad and elastic category -- and the pace of drone strikes increased sharply.
After Barack Obama became president in January 2009, he stepped up drone strikes further. Under Obama's current policy, the source said, drone strikes are not cleared with Pakistan.
DRONES AND DELAYS
Before Pasha's meeting with Panetta, a person familiar with Pakistan's position said the Pakistanis wanted to return to the policy of supposedly having drone attacks fully cleared in advance.
After this week's meeting, U.S. officials said the CIA's willingness to increase "consultation" did not mean the United States had agreed to clear every drone strike with Pakistan.
U.S. officials said the Unite States was not interested in getting clearance for drone attacks. It was unclear whether Pasha raised that issue with Panetta.
The Davis case brought to the surface apparent anger in Pakistan that the CIA was sending operatives into the country without notifying the ISI.
News reports before the Pasha-Panetta meeting said some Pakistani officials believed as many as 300 undeclared CIA operatives may be in Pakistan. A source close to the government in Islamabad told Reuters his estimate was closer to 35.
U.S. officials say, in recent months, Pakistani authorities have used delays in issuing visas to slow the rotation into Pakistan of CIA operatives, U.S. military trainers -- believed to number around 120 -- and State Department diplomats.
If the visa delays continue, one U.S. official said, eventually they could cut into the numbers of U.S. personnel conducting critical counter-terrorism operations in Pakistan.
But so far, a second U.S. official said, the visa delays are not degrading U.S. operations.
(Additional reporting Missy Ryan and Phil Stewart in Washington and Christopher Allbritton in Pakistan; Editing by John O'Callaghan and Bill Trott)