By Sanjeev Miglani and Gopal Sharma
KATHMANDU (Reuters) - In August, Indian security officials tracked down one of their most-wanted militants in a mountain town in Nepal where he had told neighbors he was a traditional healer.
That same month, Indian agents picked up a man they suspected was a top bomb-maker for the Pakistan-based Lashkar-e-Taiba militant group, this time in Nepal's southern plain.
To the north, the Chinese are busy too, trying to choke off an exodus of disaffected Tibetans into Nepal and leaning on it to clamp down on the 20,000 already there. They have even offered cash awards to Nepali border guards who send back Tibetans trying to flee.
While Nepal's leaders argue and the country drifts in a prolonged state of political limbo, its giant neighbors India and China are not waiting for it to sort itself out.
They're stepping in, operating more brazenly than ever in Nepal to protect their interests, taking on Islamist militants, crime gangs and even kidney racketeers who take refuge there.
Next week, Nepal holds elections for a second constituent assembly, five years after a first one failed to agree a post-war, post-monarchy constitution. Few expect the new assembly to be more successful in bringing stability, which means the impoverished nation of 27 million people is unlikely to see a quick end to its leadership vacuum.
India's main interests in Nepal are to curb Chinese influence and to deny a base to militants, some backed by old rival Pakistan, intent on infiltrating into India across an open border.
Officials in Kathmandu and New Delhi say China's focus has broadened from Tibetan issues to establishing a stronger foothold in countries around India.
"Our concerns in Nepal are two. Pakistan trying to stir trouble from there, push their people in, do a bit of counterfeit currency," said an Indian intelligence officer. "The bigger challenge is from the Chinese and their financial power. There, we are on the back foot."
Landlocked Nepal traditionally depends on India for food and fuel and hundreds of people criss-cross the border every day for work. India also funds extensive aid programs and plans to build road and rail links in the flat, fertile Terai region straddling the two countries.
China is now wading in too. It nearly doubled its aid to $52 million last year, including help for the military. It is also cultivating politicians and business people, just as India has done for years.
"The geostrategic rivalry between India and China in Nepal has heated up and the world is watching," said Vanda Felbab-Brown, a Nepal specialist at the Brookings Institution.
"India has been deeply involved in Nepal for decades. China's arrival is more recent, but they have quickly covered a lot of ground. If the Indians are building a hydro-electric dam, the Chinese will offer to build another in another part of the country."
Zhao Gancheng, director of South Asia Studies at the Shanghai Institute for International Studies, said China's influence had been overstated and, unlike India, it played no role in Nepal's internal affairs.
"China has no way of competing with India's influence in Nepal. If you look at it in terms of percentage points, India's influence in Nepal would exceed 80 percent."
But he said Nepal was important for China because of the long border with its Tibetan regions as well as the number of Tibetans living in Nepal. "Of course this is an issue which involves China. On this question, China and Nepal have close communication and cooperation."
India's security agencies have notched up a series of quiet successes in Nepal, reducing the threat from militant groups using it as a haven, not least the capture of the founder of the Indian Mujahideen group, Yasin Bhatkal.
Bhatkal's family in old Delhi was under watch for some time and several months ago intelligence agents tracked down a money transfer from Nepal for his wife and son, one official said, recounting the investigation that led to the arrest.
Separately, agents got a tip-off from a source in the eastern Indian state of Bihar that Bhatkal was in the Nepali tourist town of Pokhara.
They then watched for days from a house next to the one he was suspected to be in, matched the man there with pictures they had and finally a Nepali team went in to pick him up.
He was bundled into a car and driven five hours to the border with India, where he was arrested.
"The message has been clear for some time now. The terrorists are not safe there, we are getting to them," the Indian officer said.
Nepal's Foreign and Interior Minister Madhav Prasad Ghimire said his country was doing all it could to prevent Nepali soil being used by forces with designs against its neighbors.
But Bharat G.C., a former deputy inspector general of police, said Nepal must address the security concerns of India and China more resolutely.
"What we are doing right now is ad hoc, acting on the information provided by them. This is not enough. Militants and underworld elements are operating in a sophisticated way. Nepal must step up its intelligence and modernize its techniques."
(Additional reporting by Ben Blanchard in BEIJING; Editing by John Chalmers and Robert Birsel)