Back in Pakistan from exile, former prime minister Nawaz Sharif was due to file nomination papers on Monday for polls in January, but he may not take part unless President Pervez Musharraf ends emergency rule.

Sharif, ousted by Musharraf eight years ago, flew home from Saudi Arabia on Sunday saying U.S. ally Musharraf, who imposed emergency rule on November 3, had taken the country to the brink of disaster.

Two-time prime minister Sharif said he would not be a candidate for prime minister under Musharraf, who had to reinstate the judges he purged after declaring the emergency. He said he retained the option of boycotting the January 8 elections.

We don't want to boycott elections, but if you push somebody to the wall, then what are the options left? Sharif said at a news conference in Lahore.

The boycott remains a very potent option for the opposition.

Western governments fear Musharraf's emergency rule and moves to stifle democracy in Pakistan could give an advantage to Islamist militants threatening the nuclear-armed nation.

There have been more than 25 suicide attacks since Islamist militants intensified a campaign in July. The latest two killed 15 people in Rawalpindi on Saturday.

Meanwhile, 15 militants were killed in the latest fighting in the Swat Valley northwest of Islamabad, the military said.

Musharraf is under pressure at home and abroad to roll back the emergency he invoked on November 3. He has used it to purge the Supreme Court of judges he feared would annul his October 6 re-election by parliament.

Having now secured a second five-year term, thanks to a new panel of friendly judges, he is expected to quit as army chief and take the oath as a civilian president in the coming days.

Unpopular, politically isolated and desperate for support from a new parliament, Musharraf now has to contend with two rivals he accused of corruption and spent much of the last eight years trying to marginalize.

He allowed Benazir Bhutto, another two-time former prime minister, to come back to Pakistan last month protected from old graft charges in the hope she would become a post-election ally.

PRICE OF GHEE

Relations between Musharraf and Bhutto soured almost at once when a suicide attack killed at least 139 at her homecoming parade on October 19.

They worsened after Musharraf called the emergency, sacked judges, detained lawyers, opposition and rights activists, and muzzled the media.

Many of those initially detained have been released, but others have been held since.

Bhutto said her party would be taking part in the elections under protest and reserved the right to withdraw.

We felt that if we don't do that, then it will leave the field open for the regime and they will not need to rig the elections, Bhutto told Reuters by telephone from her family's hometown of Larkana after filing her nomination papers.

She said Sharif's return was a positive step and it would put pressure on Musharraf's ruling party, which was co-opted from the rump of Sharif's Pakistan Muslim League after he was ousted. Ruling party leaders fear members may now defect back to Sharif.

It has already started cracking, Bhutto said of the party.

Sharif was expected to file his election papers in Lahore, but Attorney General Malik Abdul Qayyum told Dawn TV it was highly doubtful Sharif would be eligible because of two convictions after Musharraf ousted him in 1999.

Musharraf's camp hopes opposition parties will take part as a poll without them would lack credibility.

Investors in the Karachi stock market were encouraged by Sharif's return, believing it reduced chances of a boycott that could sow instability. The index ended 0.33 percent higher.

The index shed almost 6 percent after the emergency but has recovered most of that and is up 37 percent this year.

Many ordinary Pakistanis, struggling with rising prices, seem disillusioned with all leaders. The cost of living for poor people is too high, says 56-year-old rickshaw driver Ayub Niazi.

(Additional reporting by Simon Gardner and Augustine Anthony; Writing by Robert Birsel; Editing by Bill Tarrant)

Pakistan