Pakistan has repeatedly vowed action to stop militants but analysts say denial and dithering and a seething resentment of the United States among the Pakistani people have stymied effective policy.
Escalating violence by militants and the consolidation of their grip in some places, and infiltration into others, have raised fears about the spread of Taliban influence.
Nuclear-armed Pakistan falling under the sway of al Qaeda-linked militants is a nightmare scenario for the United States and Pakistan's neighbours, and would doom U.S. efforts to stabilise Afghanistan.
"There's a great sense of angst, a sense of unravelling," said Adil Najam, professor of international relations at Boston University.
"It seems that everyone has lost control, including the military, of where things are going. I don't think they've given up the fight, it's just they don't seem to know what they can do," he said.
President Asif Ali Zardari secured more than $5 billion in aid last Friday after telling allies and aid donors in Tokyo he would step up the fight against militants.
The pledges pushed up a stock market that has gained 33 percent this year.
But elsewhere the mood is grim.
Audacious militant attacks in the eastern city of Lahore and blasts elsewhere over recent weeks have sapped confidence. A suicide car-bomber killed 25 soldiers and police and two passers-by in the northwest on Saturday.
As well as across the northwest, the Taliban are infiltrating into Punjab province and Karachi city, analysts say. The release on bail of a cleric who used to run a radical Islamabad mosque has added to a feeling that the militants are on a roll.
FRIGHTENING
Rumours of attacks on schools have spread panic and embassies have warned citizens of the danger of attacks and kidnapping. Members of Pakistan's moderate Muslim majority say they feel intimidated by a vocal and aggressive minority.
Compounding the unease is a sense that the government has been distracted by political wrangling and is in denial.
"The general impression and perception at this stage is the government lacks the will to assert itself," analyst Hasan Askari Rizvi told Dawn television. "They are denying the threat that is moving towards Islamabad."
Policy has been flip-flopping between inconclusive military offensives and peace deals that critics say embolden the militants.
The International Crisis Group think-tank says responsibility for counter-insurgency has to be transferred to civilians from a military that continues to have links with some militant groups it sees as tools in its confrontation with India.
"It's inept in the way it conducts operations, it suffers huge losses, and then it signs peace deals, it appeases the militants," said the group's Pakistan director, Samina Ahmed.
Under the latest peace pact, authorities have virtually handed over the northwestern Swat region to the Taliban to end violence. But the militants have already pushed out and taken over a new area 100 km from the capital.
"The implications of appeasement are obvious," said Ahmed. "Peace deals have been signed from a position of weakness and the militants have gained ground. It is quite frightening."
LOSING THE BATTLE
Optimists had hoped the end of military rule with a general election last year would see public support coalescing around a strong stand against the militants.
But while the Taliban have been taking advantage of grievances against corrupt courts and greedy landlords to win support, they have also been able to capitalise on widespread resentment of the United States exacerbated by its attacks on militants with missiles launched from pilotless drones.
"I'm not sure the drones have actually done anything to reduce militancy but they have strengthened the Taliban argument more than any other thing," Najam said.
"The Taliban have cornered the anti-American message."
Victory over the Taliban hinged on public opinion, he said.
"If ordinary Pakistanis can turn against the Taliban then we can win this. If they don't, if they continue to be lukewarm because the Taliban are supposed to be anti-American and all that, then there's no way you can win this," Najam said.
"The battle is in the hearts and minds of Pakistani society and I think we're losing."
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