At the same time, Bush renewed US calls for full cooperation from its key anti-terror ally in the hunt for al-Qaeda leaders believed to be holed up in remote tribal lands along the Pakistan-Afghan border.

Bush's comments at a White House press conference late Thursday came after Musharraf, against the advice of his aides, decided not to impose a state of emergency despite rampant instability.

Any such move would have automatically extended the current parliament for another 12 months, meaning a delay in elections due by early 2008.

US Secretary of State Condoleezza Rice had earlier spoken to Musharraf by telephone to press home Washington's concerns amid talk of possible emergency rule and following his decision to pull out of a key tribal council in Kabul aimed at ending Taliban and al-Qaeda-sponsored terrorism.

Bush said he had called on Musharraf to move toward democracy. "My focus in terms of the domestic scene is they have a free and fair election," he said.

"That is what we have been talking about, and hopefully, they will."

The Pakistani leader had earlier huddled with key aides worried about the threat of violence from Islamic extremists as well as a series of other issues, which have left him facing the greatest challenge yet to his leadership.

Mass protests over the attempted suspension of the country's chief justice and efforts by rivals to return from exile to contest an election come on top of criticism of his handling of militants along the Afghan border.

But he decided against a state of emergency because of the looming polls, Information Minister Mohammad Ali Durrani told AFP.

"President Musharraf has decided not to impose the state of emergency in the country as suggested by some political parties and others," Durrani said.

"The decision was taken because the priority of the president and present government is to have free, fair and impartial elections in line with the constitutional requirements."

Bush in Washington paid tribute to Musharraf's cooperation with the United States in the US-led "war on terror," and was also careful to express respect for Pakistan's sovereignty.

Musharraf has been angered by accusations that his government is not doing enough to deal with the supposed al-Qaeda haven in the tribal belt, as well as hints by officials here of possible unilateral US military strikes.

"I have made it clear to him that I expect that there be full cooperation in sharing intelligence" and "swift action" against al-Qaeda inside Pakistan if solid intelligence emerged about their whereabouts, Bush said.

"We spend a lot of time with the leadership in Pakistan talking about what we will do with actionable intelligence."

Meanwhile the Pakistani military Thursday struck at suspected militants in restive North Waziristan tribal area on the Afghan border, killing at least 10 fighters, chief spokesman Major General Waheed Arshad said.

Helicopter gunships fired on the suspected militant hideouts after attacks earlier in the day against the military.

In South Waziristan, security forces were looking for 16 soldiers missing and presumed kidnapped, amid reports that suspected militants wearing civilian clothes had captured them, officials said.

Violence has spiked in the tribal areas since the collapse of a peace deal between pro-Taliban militants and government forces on July 15, days after an army assault on a radical mosque in Islamabad killed scores of people.