Chain of Command; The Military: Musharraf dodged a bullet, but could be heading for a showdown with his Army.

Byline: Ron Moreau and Zahid Hussain

Only last week president Pervez Musharraf and the father of Pakistan's atomic bomb, Abdul Qadeer Khan, seemed to be on a dangerous collision course. The country's right-wing Islamist political parties had accused Musharraf of humiliating Khan, who is revered as a national hero for his role in developing the country's nuclear-weapons program. The scientist had been subjected to thorough interrogations since Iran and Libya fingered him as the source of the know-how and hardware behind their attempts to build a bomb. Two secular opposition parties denounced the president's handling of the scandal, claiming Musharraf was interested only in covering up his own tracks.

Even the military was beginning to question the tough line Musharraf was taking against Khan. Through friends, Khan let it be known that he would fight back if he were put on trial. He was prepared, they hinted, to testify that since 1988--when his clandestine nuclear transfers began taking place--all of the country's Army chiefs of staff, including Musharraf, were aware of and approved of his actions. "Musharraf and the military realized they had to get this over with as soon as possible," says retired Pakistani Army general Talat Masood. "They were opening a Pandora's box that could have recoiled against the military."

By the end of the week the lid was sealed. In exchange for Khan's contrite public confession on national television and a plea for clemency, Musharraf granted the 67-year-old, European-trained metallurgist a full pardon. In his surprise public apology, the gray-haired Khan took "full responsibility" for the weapons proliferation, adding: "There was never ever any kind of authorization for these activities by the government." That's exactly the message that Musharraf needed to get out: that no senior military men had anything to do with Khan's nuclear gambits.

The Pakistani leader may have dodged a bullet, but there's an RPG headed his way. As the Khan case proved, the constituency Musharraf has to worry most about is not the fundamentalists in Parliament or the Pakistani street. It's his own military. Beyond personal embarrassment, top brass worried that Khan's revelations could prompt Western countries to levy sanctions against Islamabad, cutting off their access to the latest military technology. Next week, when Indian negotiators travel to Islamabad for a new round of diplomatic talks, there will be even more at stake. For years the Pakistani Army has used the standoff over Kashmir to justify its massive budgets and indeed, its dominance of Pakistani society. A resolution, though far off, threatens to cut off that lifeline.

Historically the military has been Pakistan's paramount institution. Four military dictators ruled the nation for most of its nearly 57 years since independence. Musharraf himself came to power in 1999 by staging a bloodless coup against a corrupt, popularly elected, civilian administration. Today Pakistan's military, headed by its 500,000-strong Army, eats up 22 percent of the national budget and spends 70 percent of the government's tax revenues. So sacrosanct is the military that the Parliament has never even debated a defense budget; it simply rubber-stamps a line-item lump sum without discussion. "Once the military gets its share, there's hardly anything left over for development," says Islamabad-based defense analyst Ayesha Siddika Agha. "We don't even know how much the military actually spends."

But the fact that it comes at a terrible expense to the Pakistani people is no secret at all. Nearly one third of Pakistan's 140 million people live below the poverty line, according to the Asian Development Bank. Even essential services like health and education get less than 4 percent of the national budget combined--the lowest in South Asia. If the 57-year-long dispute over Kashmir were resolved, Musharraf knows that these disparities would be much less defensible--and the military understandably fears that could hurt its bottom line.