By Mubasher Bokhari
LAHORE, Pakistan (Reuters) - A Pakistani court on Wednesday formally charged a CIA contractor on two counts of murder at a hearing held at a prison in Lahore, a police official said, in a move that may further strain relations with the United States.
Raymond Davis, 36, shot dead two Pakistanis in the eastern Punjab city on January 27 following what he described as an attempted armed robbery. He said he acted in self-defense and the United States says he has diplomatic immunity and should be repatriated.
"He has been indicted," a police investigator assigned to the case told Reuters from inside Kot Lakhpat prison, where the trial is being held under tight security.
If convicted, Davis could face the death penalty.
BLOOD MONEY ?
The case has tested ties between the United States and Pakistan, a vital ally in the U.S.-led campaign against Taliban militants in Afghanistan.
Questions surround the identity of the victims, with some media reports saying the men worked for Pakistan's Inter-Services Intelligence (ISI) agency, and that they might have been known to Davis.
Other reports suggest they were armed robbers who had already targeted others in Lahore before attempting to rob Davis, tailing him on motor bikes along a congested city road.
The case has also strained ties between the CIA and Pakistan's main Inter-Services Intelligence (ISI) agency, which said it was unaware Davis was working in Pakistan.
There is mounting speculation the United States might back payment to the victims' families of compensation, or blood money, as laid out under Pakistani law, even if it is loathe to support a payment in what it sees as a case of self-defense.
Under that scenario, Pakistan could facilitate U.S. contact with the families of the two slain men -- and, presumably, the family of a third man who was struck and killed by a U.S. vehicle going to help Davis after the shooting -- to offer a deal.
"The best, perhaps the only, option for the government is to pacify the relatives of those killed to come to some compromise," said Talat Masood, a retired Pakistani general.
"It's the only option everyone seems to be working on."
Such payments are sanctioned by Islamic law and are common in some parts of rural Pakistan as a way to settle disputes. But the victims' families would have to agree.
A U.S. embassy spokesman said he had no knowledge of any negotiations to settle the case. The principle of diplomatic immunity was key to the case, the spokesman added.
(Writing by Rebecca Conway; Editing by Chris Allbritton and Sanjeev Miglani)