ISLAMABAD- Pakistani forces say they are making progress in their offensive against the Taliban in their Swat valley bastion following U.S. warnings that the militants posed an existential threat.

Here are some possible outcomes of the fighting in Swat, 130 km (80 miles) northwest of Islamabad, where the military says about 15,000 members of the security forces face 4,000-5,000 militants.

QUICK SUCCESS

A quick victory in Swat would allow the army to tackle militant strongholds on the Afghan border, such as North and South Waziristan, part of a region from where the Taliban orchestrate their Afghan war and where al Qaeda plots violence. President Asif Ali Zardari told the Sunday Times in an interview on the weekend Swat was just the beginning and the army would next move against militants in Waziristan. The government and army retain considerable public support for their offensive. If they can press home their advantage and deal a significant blow to the Taliban, stocks, which have dipped in recent sessions because of worry about the fighting, could see strong gains.

Quick success in Swat would also allow the 1.4 million people displaced by the fighting go home faster. Their plight, and civilian casualties in the fighting, will determine how fast opposition to the offensive crystallizes.

Given the backing of most parties and the people, and a resolve previously not seen, the army is expected to defeat the militants in Swat, though it remains to be seen how long that takes. A decisive campaign and the speedy return of the displaced would be a boost for the unpopular Zardari.

INCONCLUSIVE CAMPAIGN

The Pakistani army has since its creation in 1947 focused on the threat from old rival India but the army has rejected criticism that it is not trained or properly equipped for a counter-insurgency operation. Nevertheless, its reliance on artillery and air strikes, which critics say invariably involve civilian casualties, is a worry. The Taliban have dug in Swat's towns, where many thousands of civilians are still believed to be, and the army could get bogged down in bloody house-to-house fighting with high civilian casualties. The Taliban could strike back with bomb attacks on military convoys, posts and camps. They can also be expected to step up attacks outside Swat to create diversions and undermine public support.

An inconclusive campaign with heavy civilian casualties would undercut public support and bolster critics who decry fighting America's war. A frustrated United States could step up strikes on fighters by pilotless drone aircraft while the government might try a peace deal like the one that has just fallen apart. If history is a guide, this may be the most likely scenario.

A TALIBAN TAKEOVER?

No one expects the Taliban, fighting to impose their version of Islamist rule, to defeat the army militarily. But the fear is a failed offensive could demoralize Pakistan to such an extent that authorities gradually cede power to militants in more areas through peace deals and inaction.

If the Taliban was able to make significant inroads into the main provinces of Punjab and Sindh, the implications would be highly bearish for stocks and the rupee, and global markets could be rattled by the rising risk that Pakistan could implode.

But the chances of this happening are minimal.

Taliban expansion would also raise the nightmare scenario of Pakistan's nuclear weapons falling into militant hands though both Pakistani and U.S. leaders say the weapons are safe.

MILITARY TAKES POWER AGAIN

Given the increased popular resentment that forced former president Pervez Musharraf to relinquish power, analysts say the Pakistani military has little appetite for another coup.

But if the situation deteriorates badly, that could change.

Financial analysts say that given the unpopularity of Zardari, a coup would be positive for markets.

REGIONAL SCENARIOS

Neighbors Afghanistan and India welcome Pakistani action against militants. Both say militants from Pakistan are behind attacks on their countries and a Pakistani offensive can be expected to preoccupy the fighters at home. Afghanistan and the United States would be delighted to see a Pakistani offensive in Waziristan and could be expected to respond with coordinated action on the Afghan side of the border.

But there's a danger militants might try to stage an attack in India to spark a confrontation between the nuclear-armed Neighbors. That would divert Pakistan's attention and resources to its eastern border, as happened after November's militant assault on the Indian city of Mumbai.

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