President Barack Obama has ordered a sharp increase in drone strikes against suspected terrorists in Pakistan in recent months, anticipating Pakistan may soon bar such CIA operations launched from its territory, two U.S. officials said.

His decision reflects mounting U.S. frustration with Pakistan over a growing list of disputes — mirrored by Pakistani grievances with the U.S. — that have soured relations and weakened security cooperation. The U.S. is withholding at least $3 billion in reimbursements for counterinsurgency operations and security-related funding, according to congressional aides and Pakistani officials.

“We are reaching the limits of our patience, and for that reason it’s extremely important that Pakistan take action” to crack down on armed groups based there that attack American and coalition forces in Afghanistan, U.S. Defense Secretary Leon Panetta said yesterday in Kabul.

In more than a dozen interviews, diplomats from both nations say they are trying to repair rifts that have sent relations to the lowest point in two decades, while military and intelligence officials are less sanguine about building trust. At stake are billions of dollars in U.S. funding for an ally in financial crisis, and American influence with a nuclear-armed power as U.S. forces pull out of neighboring Afghanistan.

U.S. officials, who spoke yesterday on the condition of anonymity to discuss classified intelligence, said they expect Pakistan may order the CIA to vacate the remaining air base from which it flies Predators to target militants sheltered in Pakistan’s tribal areas bordering Afghanistan.

Sovereignty Issue

The U.S. has conducted drone attacks since 2004 with the tacit approval of authorities in Islamabad. Pakistan’s parliament and leaders are now demanding an end to the strikes, calling them a violation of the country’s sovereignty.

The Obama administration is so frustrated by what it regards as Pakistan’s unwillingness to crack down on certain militant groups and resolve other issues — such as frozen NATO supply lines to Afghanistan — that it is prepared to accept aid cuts pending in Congress and to cultivate closer relations with India, Pakistan’s longtime rival, U.S. officials said.

Pakistan has its own set of grievances with the U.S., and Panetta’s scolding doesn’t help, said Pakistan’s Ambassador to Washington Sherry Rehman.

“This kind of public messaging from a senior member of the U.S. administration is taken very seriously in Pakistan, and reduces the space for narrowing our bilateral differences at a critical time in the negotiations,” she said yesterday in an interview. “It adds an unhelpful twist to the process and leaves little oxygen for those of us seeking to break a stalemate.”

Stalled Cooperation

Cooperation has been at a standstill for more than six months since Pakistan shut down NATO military supply routes to Afghanistan after U.S. forces accidentally killed 24 Pakistani border forces during a friendly fire incident in November. When U.S. officials privately agreed in February to Pakistan’s demands for a public apology, Pakistani officials asked them to wait until a parliamentary committee completed recommendations for a reset of relations, according to officials on both sides.

By the time the review was completed two months later, a series of attacks in Afghanistan by Pakistan-based militants left U.S. officials furious and no longer willing to apologize, officials said on condition of anonymity.

Reaching Accommodation

U.S. and Pakistani officials said they are trying to reach an accommodation on the two most serious disagreements: the drone operation and military supply routes. Most spoke on condition of anonymity to be candid about the tensions in an alliance that has fallen to its lowest point since 1990. That year, Congress banned most economic and military aid to Pakistan over its nuclear program, and the U.S. refused to deliver a fleet of F-16 aircraft for which Pakistan had paid nearly $500 million.

Last month, officials on both sides suggested intelligence sharing might be possible to allow drone strikes to be conducted in concert and suggested a deal might be coming on supply lines. This week, no one expressed optimism about a breakthrough on either issue — or any quick resolution of many other disagreements.

“This relationship is sinking but has yet to reach the bottom,” said Bruce Riedel, a former CIA analyst who led a White House review of U.S. policy on Afghanistan and Pakistan when Obama first took office.

’Extraordinarily Dissatisfied’

Riedel, now a fellow at the Brookings Institution in Washington, said Pakistan is harboring three of the U.S.’s most- wanted terrorists: al-Qaeda leader Ayman al-Zawahiri; Afghan Taliban leader Mullah Omar; and Hafiz Saeed, the Lashkar-e-Taiba chief blamed for masterminding the 2008 attacks that killed 166 people in Mumbai.

Panetta’s comments in Kabul — and his decision not to stop in Pakistan after visiting neighboring India — reflect U.S. officials’ complaints over what they say is an increasing flow of money, training and arms to the Haqqani militant group, which has attacked American and allied personnel in Afghanistan from Pakistani havens.

The U.S. is “extraordinarily dissatisfied” with Pakistan over the Haqqanis, U.S. Joint Chiefs of Staff Chairman Army General Martin Dempsey said yesterday at the Pentagon.

The Obama administration considers the drones a vital part of a counterterror campaign that protects both nations. U.S. officials said a strike this week killed al-Qaeda’s No. 2 leader, Abu Yahya al-Libi, in Pakistan’s North Waziristan area. The U.S. will continue the drone strikes from the sole remaining base in Pakistan — as well as from neighboring Afghanistan — for as long as it can, two U.S. officials said.

Pakistani Rebuttal

Pakistani national security officials, who spoke on condition of anonymity, denied that Pakistan is aiding U.S. enemies. Two officials said if the U.S. has evidence that the Haqqanis maintain bases in Pakistan’s tribal areas, it should share that information so Pakistan can eliminate them.

The Pakistani officials said the U.S. hasn’t done so and hasn’t used its drones to destroy militant bases in Pakistan, undermining claims that Pakistan is actively sheltering insurgents.

Pakistani security officials also said it’s insulting that Obama refused to meet with their president at the North Atlantic Treaty Organization summit in Chicago last month.

U.S. officials, speaking on condition of anonymity, said they made clear in advance that Obama would meet with President Asif Ali Zardari only if a deal was reached to reopen the NATO supply lines to Afghanistan. U.S. officials thought they had Pakistani assurances, and officials said that failure was one more blow to Pakistan’s standing with the administration.

’Dug In’

“Both sides are really dug in and neither side is particularly interested in making an accommodation,” said Jonah Blank, the former South Asia policy adviser for the Senate Foreign Relations Committee, now a senior political scientist at the Rand Corporation in Arlington, Virginia. “The level of anger is huge.”

The impasse over the NATO routes came after a series of other flash points last year, including the killing of two Pakistanis by a CIA contractor and the U.S. raid on al-Qaeda leader Osama bin Laden’s compound without informing Pakistani officials. 

Ambassador Rehman said in an interview last week that while this may be a low point, “It’s not as low as it looks because there is a fair amount of commitment on both sides to keep the relationship going.”

Money Demands

U.S. officials said the supply-route talks are hung up because Pakistan is demanding more money than the U.S. is willing to pay to move cargo. Pakistan is also seeking U.S. funding for road repairs and other infrastructure rebuilding to compensate for wear and tear from NATO convoys, according to U.S. officials.

Rehman said the issue is about “coming up with new frameworks of mutual cooperation,” not money.

Pakistan is “looking for a face-saving” solution, Hasan- Askari Rizvi, an independent political and military analyst in Lahore, said in a telephone interview. The military, he said, “used to decide on foreign policy in the past. Now, they don’t want to take the blame,” and the civilian leadership is distracted and fears political criticism for making any concessions.

In Washington, Congress is moving to cut aid and other payments to Pakistan. Pakistan was supposed to be the No. 3 recipient of U.S. foreign aid this fiscal year, though since last summer the administration hasn’t released more than $1 billion in security funding for fiscal years 2011 and 2012.

Aid Suspended

Military aid was suspended following the uproar in Pakistan over the violation of its sovereignty by the U.S. raid that killed bin Laden in Abbottabad. Pakistan expelled U.S. military trainers and denied visas for U.S. officials.

The U.S. acknowledges it hasn’t paid Pakistan more than $1 billion in counterinsurgency reimbursements owed since December 2010. Pakistan says that tab has now grown to $3 billion.

Meanwhile, the Senate Appropriations Committee last month voted to cut by two-thirds the administration’s request for more than $2.2 billion in foreign aid to Pakistan for fiscal year 2013, said Alan Kronstadt, a Pakistan specialist at the non- partisan Congressional Research Service.

The full House voted to block counterinsurgency reimbursements until NATO supply lines are reopened, cap the total amount of reimbursements and condition payments on proven counterterrorism cooperation, he said.

Sesame Street

There is even a dispute over U.S. funding for Pakistan’s “Sesame Street,” halted this week following fraud allegations against the puppet theater that produces the show. The group denies the charges and an investigation is under way.

“Relations are at the worst level ever and appear to be deadlocked right now — and it’s not likely to get better any time soon,” said Brian Katulis, a foreign policy adviser to the Obama re-election campaign and a Pakistan specialist at the Center for American Progress in Washington.

Complicating matters, it’s an election year in both nations, and neither government wants to be seen as “soft,” given public opinion.

A Pew Research poll last June found 69 percent of Pakistanis called the U.S. an “enemy” after the U.S. raid that killed bin Laden; 6 percent saw the U.S. a “partner.” A CBS poll in November found 63 percent of Americans viewed Pakistan as an “enemy” or “unfriendly,” with 23 percent calling Pakistan an “ally” or “friendly.”

Husain Haqqani, Pakistan’s former ambassador to Washington, calls the core problem one of conflicting narratives.

“The depth of the sentiment in Pakistan that it is an ally receiving bad treatment from the U.S. is not fully understood in Washington,” he said in an interview. “And the debate in Washington, where most people no longer consider Pakistan a friend and an ally, is not being understood in Islamabad.”