The leaders of the two top parties in Pakistan's recent election meet on Thursday to discuss forming a coalition government that could force President Pervez Musharraf out of power.
Musharraf, who took power in a 1999 military coup in the nuclear-armed country and has been one of Washington's top Muslim allies against al Qaeda, is vulnerable to a hostile parliament after his supporters were heavily defeated in Monday's election.
Nawaz Sharif, the prime minister Musharraf overthrew more than eight years ago and whose party came second in the election, goes into the coalition talks having made clear he would like the president to go.
But in an interview with the Wall Street Journal published on Wednesday, Musharraf said he was not ready to resign.
We have to move forward in a way that we bring about a stable democratic government to Pakistan, he said.
U.S. President George W. Bush's administration has urged the next government to work with Musharraf and says Washington needs Pakistan -- which borders Afghanistan where U.S. and NATO-led forces are fighting Islamist militants -- as an ally.
Bush telephoned Musharraf on Tuesday, a White House spokeswoman said, without giving details of their talk.
Musharraf's critics say his efforts to hold on to power have been destabilizing a nuclear-armed country battling to stop attacks by al Qaeda and other militants. Neighbors and allies fear Pakistan is becoming more unstable.
Pakistani shares, buoyed by Monday's peaceful poll, ended at a new closing high, at 14,971.94 points, for the second consecutive session. Dealers said investors were awaiting the coalition negotiations.
The index has gained 4.3 percent since the election and has recovered all the losses suffered after the assassination of former prime minister Benazir Bhutto on December 27.
The KSE-100 is the only Asian share market to have gained this year, up 6.3 percent. It has risen about 900 percent since 2000 while its gains over the past 12 months are ranked behind only China and Indonesia. However, many investors consider it a difficult and illiquid market.
Bhutto's Pakistan People's Party (PPP) emerged as the main victor in the election and has begun coalition talks with Sharif's Pakistan Muslim League (Nawaz), also known as the PML-N or Nawaz League.
We are going to find solutions to the problems of Pakistan, Bhutto's widower Asif Ali Zardari, who took over as PPP leader after she was killed, said of his meeting with Sharif.
Parliament will decide which president it can work with and which president it cannot, Zardari told reporters.
Since returning from exile in November, Sharif has adamantly championed the reinstatement of judges Musharraf fired when he imposed six weeks of emergency rule on November 3, a demand he repeated when he joined a protest by lawyers in Islamabad.
The time has come to take Chief Justice Iftikhar Chaudhry and other judges to their chambers in court, Sharif told a crowd of about 150 lawyers on a road leading to Chaudhry's house, where he has been detained with his family since November.
Musharraf sacked the judges, including then Supreme Court Chief Justice Iftikhar Chaudhry, before they could rule on whether his re-election by the last parliament while he was army chief was legitimate under the constitution.
Analysts say if the PPP and Sharif's party team up, Musharraf can either quit gracefully or drag Pakistan through more upheaval as parliament tries to oust him on grounds he violated the constitution when he imposed emergency rule.
Analysts say Musharraf will be hoping Zardari and Sharif fail to agree on a coalition, and that this could occur because of a history of enmity and mistrust between the centre-left PPP and the centre-right PML (N).
Zardari was adamant Musharraf's main supporters, the Pakistan Muslim League, would not be admitted to a PPP-led coalition, but gave the president a glimmer of hope by saying a junior partner in the last PML-led government, the Karachi-based Muttahida Qaumi Movement, was welcome.
Zardari met the leader of another small, likely coalition partner, the ethnic-Pashtun Awami National Party, and both leaders promised to cooperate for the supremacy of parliament.
(Additional report by Faisal Aziz and Deborah Charles; Editing by Robert Birsel and Jerry Norton)