ISLAMABAD: Pakistan denied Tuesday making concessions to militants after signing a deal allowing them to impose Islamic law in an area where government troops have failed to put down a bloody insurgency.

The United States, which puts South Asia on the frontline of the 'war on terror,' has branded extremists in northwest Pakistan a direct threat to the country, neighbouring Afghanistan, US security and other powers.

Analysts have derided the deal as a defeat that will embolden militants in the violent, nuclear-armed Muslim nation, but the government and pro-Taliban cleric Sufi Mohammad, who signed the deal, hailed it as a chance for peace.

Information Minister Sherry Rehman denied it was a 'concession.'

'It is in no way a sign of the state's weakness. The public will of the population of the Swat region is at the centre of all efforts and it should be taken into account while debating the merits of this agreement,' she said.

The government hopes that militants will now disarm in the Swat valley, where the deal will be implemented, and Rehman insisted President Asif Ali Zardari will only validate the agreement after peace has been restored.

'The president will approve the Nizam-i-Adal Regulation after the restoration of peace in the region,' she said.

Radical leader Maulana Fazlullah has waged a nearly two-year campaign to enforce Taliban-style sharia law in the northwest Swat Valley, once a ski resort once popular with Westerners.

Thousands of his followers have beheaded opponents, silenced detractors, bombed schools and outlawed entertainment, forcing tens of thousands to flee and trapping a poorly-equipped government military into an apparently unwinnable conflict.

On Monday, the government signed a deal with his father-in-law, considered more moderate, that accepts Islamic law as the only system of justice in the Malakand district, home to three million and of which Swat is part.

'He will set up a peace camp in Mingora and hold talks with Taliban to disarm them and establish peace in the region,' the cleric's spokesman, Amir Izzat, told AFP after Mohammad set out for the capital of Swat.

Speaking in Tokyo, US Secretary of State Hillary Clinton said she needed to learn more about the issue before commenting on it, but warned that 'extremist elements in Pakistan pose a direct threat' to Pakistan and other countries.

'The decision that was announced by the government of Pakistan has to be thoroughly understood and we are in the process of pursuing that at this time,' Clinton said.

'We believe that the activity by the extremist elements in Pakistan poses a direct threat to the government of Pakistan, as well as the security of the United States and a number of other nations,' she added.

Fazlullah's spokesman Muslim Khan said any decision on extending a 'goodwill' 10-day ceasefire would be dependent on the talks with Mohammad.

'A decision on a permanent ceasefire will be made after meeting Sufi Mohammad and obtaining details about the accord on enforcing sharia,' the spokesman told reporters from Swat.

'If the government is sincere in declaring sharia law then, as Muslims, we also want it and the Taliban will show flexibility,' he said.

The military vowed to hold fire and respect Monday's agreement but said troops would only leave 'whenever the government feels normalcy has been restored and the writ of government has been re-established.'

US and NATO forces have criticised previous peace deals with militants in Pakistan, saying they have seen an increase in suicide attacks on international and Afghan forces across the border in Afghanistan.

'There is a danger that militants there will now be emboldened,' political analyst Ayaz Amir told AFP.

'Very soon they are likely to call for a withdrawal of troops from Swat and if that happens it would mean they are the one who exercise the authority.'

'If not, then it will set the stage for a collapse of the agreement and renewal of violence.'