U.S. sees limited progress in Pakistan spy standoff.

National security officials say progress is being made to persuade…

National security officials say progress is being made to persuade Pakistan to free a CIA contractor held on murder charges but that Washington could take punitive diplomatic and financial action if the case is not resolved soon.

The officials said they believed private discussions between Islamabad and Washington have cooled anti-American rhetoric that erupted in Pakistan after the arrest of Raymond Davis, a former U.S. special forces soldier employed by the CIA as a bodyguard for its operations officers.

His arrest put grave strains on ties between U.S. and Pakistani intelligence agencies, who have had an uneasy but sometimes productive partnership combating militants based in tribal areas along Pakistan’s border with Afghanistan.

Last week, CIA Director Leon Panetta raised the Davis case with his Pakistani counterpart General Ahmed Pasha, head of the Inter Services Intelligence directorate.

Secretary of State Hillary Clinton and Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, also talked about Davis with top Pakistani officials.

The U.S. message, according to a senior official in Washington, was “turn down the volume” of public discussion about Davis and “work through private channels.”

Source: Mark Hosenball for Reuters.

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