The US Senate is scheduled to introduce the Kerry-Lugar bill, their version of a Pakistan aid bill stacked with similar benchmarks this week.

The Kerry-Lugar bill, like the House of Representatives’ PEACE Act, will give $7.5 billion to Pakistan over the next five years provided Islamabad takes certain verifiable steps to tackle terrorism.

Islamabad doesn't have very high credibility in Washington after they blew away $12 billion in aid from Bush -- and the Taliban grew from strength to strength. But Pakistan wants the aid without strings attached. Both Pakistan PM Gilani and president Zardari have been lobbying hard for aid without conditions.

Those tracking Pakistan say there is a growing constituency within Pakistan that is ready to reject the aid package if it comes with conditions. They point to the billions offered by Bill Clinton to Nawaz Sharif in 1998 as a carrot to stop him from conducting nuclear tests after India blasted off on May 11-13. Nawaz went ahead anyway.

Could Pakistan afford to put themselves in Taliban's way if they reject the aid package this time?

What happens if Pakistan stands up tomorrow and says, "take your custom elsewhere" we don't want your money. Given the fact that the US need Pakistan to fight their fight in Afghanistan, there is a very realistic chance that there will be some backtracking on the benchmarks. In town recently, Howard berman and his congressional delegation acknowledged that there would be "pushbacks" by the Obama administration to dilute the demands from Pakistan.
 
Indian security officials take a very different view, but that is part geography, part history.

The thing is, Indian officials say, Pakistan is yet to accept the strategic danger they are in. Taliban is still considered by many in the military-intelligence establishment as a strategic asset.

According to the Indian security assessment, the game in Islamabad hasn't changed very much. The army and government still desperately need money. But they continue to have an interest in nurturing the jihadis, because they say, the army-ISI runners still believe they retain the ultimate control over the jihadi machine. From time to time, the jihadis are "allowed" to "vent steam" as an intelligence official told me.

Of course the easiest is to send them across the LOC.  But improved surveillance by India and better defences might make it difficult. Here comes the game-changer, they’re now intent on terrorist disruption and Lahore is just as good. And so it goes on, the security forces are on the retreat and the jihadis are on a roll.