ISLAMABAD - Pakistan believes Taliban chief Baitullah Mehsud, who has a $5 million U.S. bounty on his head, was probably killed with his wife and bodyguards in a missile attack two days ago, the interior minister said on Friday.

An intelligence officer in South Waziristan told Reuters that Mehsud's funeral had already taken place, while Pakistani media cited their own security sources, saying Mehsud was dead.

He was killed with his wife and he was buried in Nargosey, the officer said, referring to a tiny settlement about 1 km (half a mile), from the site of the attack, believed to have been carried out by a pilotless U.S. drone aircraft.

Diplomats in Islamabad say Mehsud's death would mark a major coup for Pakistan, but many doubt it will help Western troops fighting the Taliban insurgency in Afghanistan. Most of his focus has been on attacking Pakistan's government and security forces.

Interior Minister Rehman Malik and other Pakistani officials said all the signs were that Mehsud had been killed, but they lacked physical evidence as it was impossible to enter the Taliban controlled area in the tribal lands of South Waziristan..

We suspect he was killed in the missile strike, Malik told Reuters. But we don't have material evidence to confirm it.

People were mourning in the settlement close to Makeen village, where Mehsud was tracked and targeted, Malik said.

He said intelligence suggested Taliban leaders were meeting somewhere in South Waziristan to decide on Mehsud's successor.

The missile attack killed Mehsud's brother and seven bodyguards as well as his wife, Malik added.

The wife's death had been confirmed hours after the attack Wednesday that targeted her father's house.

A spokesman for the Afghan Taliban said their struggle would be unaffected by Mehsud's reported death.

The Taliban's jihad against foreign forces in Afghanistan will not be affected if a Pakistani Taliban leader is killed on the other side, Afghan Taliban spokesman Zabiullah Mujahid said by telephone from an undisclosed location.

LINGERING DOUBTS

Taliban leaders presumed dead have sometimes resurfaced later and there were reports from other media quoting Taliban sources saying that Mehsud was wounded and others saying he was dead.

If Mehsud was killed, regular Pakistani Taliban spokesmen were unlikely to confirm it until a new leader was chosen.

Retired brigadier Mehmood Shah, former chief of security in the tribal areas, doubted Mehsud could be easily replaced.
It is quite a setback for the Taliban movement. He is the one man who really organized Taliban, kept unity among them and really forwarded the agenda with a lot of ... strategic thinking, said Shah.

Mehsud declared himself leader of the Pakistan Taliban, grouping around 13 factions in the northwest, in late 2007 and his fighters have staged a wave of suicide attacks inside Pakistan and on Western forces across the border in Afghanistan.

He is accused of being behind the assassination of Benazir Bhutto in December 2007, a charge he has denied. Conspiracy theories abound over who killed the former prime minister.

A U.S. official said there were grounds to believe Mehsud was dead. There is reason to believe that reports of his death may be true, but it can't be confirmed at this time, the official told Reuters, speaking on condition of anonymity.

U.S. missile attacks on Mehsud territory in South Waziristan became more frequent after Pakistan ordered a military offensive against him in June.

Neither the Pakistani nor U.S. government confirms such attacks because of sensitivities over violation of Pakistan's territorial sovereignty.

CONTENDERS FOR TALIBAN LEADERSHIP

The names that have surfaced as the most likely successors to Mehsud included Hakimullah Mehsud, Maulana Azmatullah and Wali-ur-Rehman, and Qari Hussein.

Hakimullah Mehsud commands Taliban militants in three tribal regions of Orakzai, Khyber and Kurram and is said to be an important leader in the Taliban hierarchy.

Like Baitullah, Azmatullah also hails from the Shahbikhel -- a sub-tribe of the Mehsuds. He is an important commander and a member of the Taliban shura. Wali-ur-Rehman is another shura member and a former spokesman for Baitullah.

Qari Hussain is regarded as the main overseer of the suicide bomb campaign and other high profile attacks inside Pakistan.

Hussain belongs to the Mehsud tribe but he is also a member of Lashkar-e-Jhangvi, a militant group based in the central province of Punjab that forged ties with al Qaeda well before the September 11. 2001 attacks on the United States.

(Additional reporting by Adam Entous and Paul Eckert in Washington, Alamgir Bitani in Peshawar and Zeeshan Haider in Islamabad; Writing by Simon Cameron-Moore; Editing by Sanjeev Miglani)

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