ISLAMABAD (Reuters) - The Pakistan army said on Monday it had ceased operations against Taliban militants in the northwestern valley of Swat, and an Islamist cleric asked for troops to be shifted to safer places to give peace a chance.

U.S. officials have expressed unease about Pakistan's strategy for pacifying Swat. They fear it could result in another safe haven for al Qaeda and Taliban militants in the country.

The military operation has been halted, military spokesman Major-General Athar Abbas told Reuters, explaining that further civilian casualties would have alienated support for the army.

Hundreds of thousands of people have fled their homes, and the Taliban largely controls the valley despite the presence of four army brigades or 12,000 to 16,000 troops.

The army had already reduced operations in Swat because it lacked public backing, and was hampered by the breakdown of the local administration and ineffectiveness of the police in the face of the insurgency, Abbas said.

Abbas said there would be no sanctuary for militants in Swat so long as the writ of the state was re-established.

But he said that at this stage that was a big if.

The army needed sophisticated surveillance equipment and attack helicopters to fight a counter-insurgency campaign, Abbas said, echoing a point that army chief Ashfaq Kayani was expected to make in the United States this week.

The army has been fighting Taliban insurgents in several tribal regions bordering Afghanistan, but the insurgency in Swat, a one time tourist haven in the mountains, was just 130 km (90 miles) northwest of the capital Islamabad.

Critics say the government, which has offered to instate Islamic sharia law in Swat and neighboring regions, has risked encouraging militancy with policies of appeasement.

Sunday, authorities freed two Taliban fighters in exchange for an official and six guards kidnapped in Swat, according to a militant spokesman. A government official refused to comment on whether any swap had taken place.

Pakistani Foreign Minister Shah Mehmood Qureshi will doubtless face questions over Swat when he meets U.S. and Afghan officials in Washington this week to review the security strategy for the region.

STEPS LISTED

A former militant cleric acting as peacemaker requested the

government to shift its forces to safer places in Swat, where more than 1,200 people have been killed since violence erupted in late 2007.

Maulana Sufi Mohammad, who renounced militancy after being released from jail last year, has led a struggle for Islamic sharia law in Swat since the early 1990s, and his son-in-law Maulana Fazlullah is the local Taliban commander.

After talks between two, a senior government official said Saturday Taliban fighters and the authorities had agreed to a permanent ceasefire in Swat.

But Fazlullah subsequently said that would only be decided once a temporary ceasefire expires in the middle of this week.

During a news conference called by Sufi Mohammad in Mingora, the main town in Swat, his spokesman listed a series of steps both sides should take to end the conflict.

We request the government that it should immediately shift its forces deployed in schools, houses, mosques, hospitals... to safer places, said spokesman Amir Izzat.

Security forces and the Taliban should also remove barricades on the roads to allow people to move freely, the spokesman said.

The Taliban were also asked to stop interfering in administrative and police affairs.

Their fighters have torched nearly 200 girls schools in a campaign against female education, and they have conducted public executions, beheading people, enforcing their own brand of the sharia in Swat.

(Reporting by Junaid Khan, Augustine Anthony and Sheree Sardar; Editing by Valerie Lee)

Pakistan Afghanistan