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* Clinton says “sorry” for Pakistan military losses

* Deal ends stalemate after months of haggling

* Impasse had cost U.S. $100 million per month

(Adds NATO, U.S. lawmaker)

By Andrew Quinn and Qasim Nauman

WASHINGTON/ISLAMABAD, July 3 (Reuters) – Pakistan and the

United States reached a deal on Tuesday to reopen land routes

that NATO uses to supply troops in Afghanistan, ending a

seven-month crisis that damaged ties between the two countries

and complicated the U.S.-led Afghan war effort.

U.S. Secretary of State Hillary Clinton, in a telephone call

with Pakistani Foreign Minister Hina Rabbani Khar, apologized

for a November NATO air strike that killed 24 Pakistani soldiers

last November and prompted an infuriated Islamabad to slam the

supply routes closed.

“We are sorry for the losses suffered by the Pakistani

military. We are committed to working closely with Pakistan and

Afghanistan to prevent this from ever happening again,” Clinton

said in a statement following the conversation.

Khar, in turn, informed Clinton that Pakistan would reopen

the supply routes and, in a major concession to the United

States, would not follow through on threats to dramatically hike

the transit fees.

The deal, which came after several previous attempts at

negotiation had failed amid a dispute over a U.S. apology,

opened the prospect of broader improvement in U.S.-Pakistan

ties.

But even with this hurdle down, others remain. They include

Pakistan’s opposition to U.S. drone strikes on its territory,

and Washington’s allegations that Islamabad condones, or even

assists, anti-American militants.

In her statement, Clinton said the supply lines agreement

“is a tangible demonstration of Pakistan’s support for a secure,

peaceful, and prosperous Afghanistan and our shared objectives

in the region.” She added that the deal would allow the United

States and its NATO partners to conduct their planned military

drawdown from Afghanistan at a much lower cost.

U.S. officials said the United States was spending $100

million more a month to send supplies across a long alternate

route overland across Central Asia and into Afghanistan.

PAKISTANI TALIBAN THREATENS CONVOYS

The Pakistani Taliban militant group immediately threatened

to attack trucks that resume carrying supplies into Afghanistan,

where most of the 128,000 NATO soldiers are due to withdraw by

the end of 2014.

“We will attack NATO supplies all over Pakistan. We will not

allow anyone to use Pakistani soil to transport supplies that

will be used against the Afghan people,” the group’s spokesman

told Reuters by telephone from an undisclosed location.

U.S. Defense Secretary Leon Panetta, who said last month

that Washington was losing patience with Pakistan because of the

safe havens it offers to insurgents in neighboring Afghanistan,

welcomed the news that the supply routes would reopen.

In an interview with Reuters, Panetta all but ruled out an

apology to Pakistan over the NATO air strike.

Pakistan’s Prime Minister Raja Pervez Ashraf told senior

government leaders on Tuesday that continued closure of the

routes was harming Islamabad’s relationship with Washington.

Pakistan’s Ambassador to the United States Sherry Rehman said

the supply route deal could help to spur more cooperation

between the two uneasy partners.

NATO Secretary-General Anders Fogh Rasmussen welcomed the

announcement, saying it highlighted the important role Pakistan

has in supporting a stable future for Afghanistan.

U.S.-Pakistan ties turned markedly worse after the U.S. raid

that killed al Qaeda leader Osama bin Laden on Pakistani

territory last year. Relations have been further poisoned by the

U.S. drone strikes to target suspected militants and

Washington’s charge that Islamabad turns a blind eye to Haqqani

network militants operating from within its borders.

Republican Senator Lindsey Graham, who is among a growing

number of U.S. lawmakers who have voiced doubts about the

Pakistan alliance, welcomed Tuesday’s announcement, but said

more needed to be done to put the relationship on the right

footing.

“If the Pakistani military intelligence services would

engage in aggressive efforts to combat terrorism in coordination

with coalition forces, it would tremendously enhance our

successes in Afghanistan,” he said in a statement.

“THREE LITTLE WORDS”

Clinton’s careful statement was not the full-throated

apology that Pakistan demanded for the deadly November attack,

but went further than Washington had before in expressing regret

for an incident that NATO described as an unfortunate accident.

“Foreign Minister Khar and I acknowledged the mistakes that

resulted in the loss of Pakistani military lives,” Clinton said,

adding that she had reiterated U.S. regrets for the deaths of

the soldiers and offered condolences to their families.

The U.S. administration, seeking to shield President Barack

Obama from Republican criticism months before November’s

presidential election, had resisted an outright apology and

political analysts said the moderate expression of regret came

following an expensive delay.

“Three little words – ‘We are sorry.’ If they’d been

delivered seven months ago, they might have saved hundreds of

millions of dollars,” said Jonah Blank, a former aide to

Senator John Kerry, who is now at the Rand Corporation.

With a deal reached, both sides were set to benefit.

The agreement appeared to include a commitment by the United

States to initially pay Pakistan $1.8 billion in military aid

arrears.

But Washington would only have to provide $250 in handling

fees for each shipment of NATO supplies going into Afghanistan,

the same amount paid on those shipments before November. In

recent months, Pakistani officials had demanded fee hikes that

some suggested could have amounted to a twenty-fold increase, at

about $5,000 per shipment.

Payment of aid arrears could be a windfall for Pakistan’s

unpopular government, which is under pressure to deal with a

struggling economy, chronic power cuts and inflation in the

lead-up to parliamentary elections expected early next year.

(Additional reporting by Missy Ryan and Michael Georgy in

Islamabad and David Alexander in Washington.; Editing by Warren

Strobel and Christopher Wilson)