A political crisis in the past three months that has seen the worst tension between Pakistan's government and military since a coup in 1999 appears to have eased -- for now -- with a delicate balance of power re-established, observers said.

The latest sign of a thaw was in snowy Davos, Switzerland, where Prime Minister Yusuf Raza Gilani again backed away from critical remarks earlier this month that the military had acted unconstitutionally by supporting a top court-led investigation into a mysterious memo.

There is no intention of the military to have a coup in the country because they also want stability in the country, Gilani told reporters in Davos on Saturday.

They want democracy in the country and they want to strengthen the country.

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See: http://link.reuters.com/kac58m

Pakistan blog: http://blogs.reuters.com/pakistan/

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Since October, Pakistan has been roiled by a scandal that has, at times, taken bizarre turns. It involves an American businessman of Pakistani descent delivering an unsigned memo to the Pentagon asking for U.S. help in reining in a military humiliated and angry over the May 2, 2011 commando raid that killed al Qaeda leader Osama bin Laden.

Gilani had criticised the army chief General Ashfaq Kayani and director-general of the military's Inter-Services Intelligence agency Lieutenant-General Ahmed Shuja Pasha in January for filing responses in a Supreme Court investigation into the origins of the memo.

In an interview with Chinese media, Gilani had said the filings were unconstitutional, infuriating the military's high command which responded with a stern press release, warning of very serious ramifications with potentially grievous consequences for the country.

But the standoff that had sparked talk of a coup in the nuclear-armed nation grappling with the fallout from the U.S.-led war in neighboring Afghanistan and a weak economy appears to have ended, for now, a senior U.S. official said.

Things have calmed down in the last week or so, the official said. But this is Pakistan. Any of the players could do something unexpected.

SMOOTH TIES

The United States wants smooth ties between civilian and military leaders so that nuclear-armed Pakistan can help efforts to stabilise neighbouring Afghanistan, a top priority for President Barack Obama.

In the middle of all this, the Supreme Court is pushing for old corruption cases to be re-opened against President Asif Ali Zardari, and has threatened Gilani with contempt of court if he doesn't do so. The government and Gilani maintain that Zardari has immunity as head of state.

Zadari is the husband of slain former premier and leader of the Pakistan People's Party (PPP) Benazir Bhutto and remains chairman of the party along with his son Bilal, who is currently studying in Britain.

Gilani, who leads the PPP coalition government, has already appeared before the Supreme Court once, taking a respectful tone, and subsequently met with the top military leaders to discuss broad plans for possible peace talks over Afghanistan.

Still, despite the seeming lull, no one thinks the central debate of Pakistan -- who has the power? -- has been settled.

The underlying problem is still the question of the relationship between the executive and the judiciary and second, between the executive and the military, said political analyst Hasan Askari Rizvi.

Despite being officially under civilian control, the military sets foreign and security policies and has staged three coups in Pakistan and ruled the country for more than half of its history.

A senior PPP member, who requested anonymity in order to speak to the media, said fear of each other is at the heart of the conflict. The civilians are wary that the military will interfere again in politics, he said.

And the military remains wary that the civilians are constantly looking for international leverage to cut them down to size.

(Additional reporting by Axel Threlfall in SWITZERLAND, and Michael Georgy and Serena Chaudhry in ISLAMABAD)