Aug. 9 (Bloomberg) -- President George W. Bush voiced hope for ``free and fair'' elections in Pakistan next year as he sought to quell doubts about President Pervez Musharraf's reliability as an ally against terrorism.

``We spend a lot of time with the leadership in Pakistan talking about what we will do with actionable intelligence'' to ``bring top al-Qaeda targets to justice,'' Bush told a news conference in Washington before leaving for vacation.

Musharraf's eight-year military rule is being tested by political unrest following the army raid July 10 at Islamabad's Red Mosque that killed 75 pro-Taliban militants. Opposition to Musharraf first intensified in March after he suspended the Supreme Court's chief justice. A panel of judges ordered him reinstated last month.

The political instability has prompted debate among U.S. presidential candidates about al-Qaeda terrorist camps in the rebellious, mountainous wilderness along Pakistan's border with Afghanistan. Democratic presidential candidate Barack Obama said he would consider sending in American troops if Musharraf didn't to take a tougher line against al-Qaeda.

Attacks in Pakistan after the Red Mosque raid have killed more than 160 people in the last month. Even with the unrest, Musharraf sees no need to declare a state of emergency, Pakistan's information minister, Mohammad Ali Durrani, said today in a telephone interview.

Elections in January

Pakistan is scheduled to hold parliamentary elections in January and Bush said he expects Musharraf will make sure they are ``free and fair.'' He said he had seen no evidence that the Pakistani president would declare a state of emergency.

Under Pakistan's 1971 constitution, the president can declare a state of emergency and put off the elections. Secretary of State Condoleezza Rice called Musharraf last night, State Department spokesman Sean McCormack said, without giving details.

Musharraf's anti-terrorism strategy in tribal areas that border Afghanistan is failing, U.S. officials have said. A 2006 agreement making tribesmen responsible for expelling non- Pakistani gunmen has resulted in al-Qaeda establishing a haven there, according to the director of U.S. national intelligence, Michael McConnell.

Bush said he told Musharraf ``the American people would expect there be swift action taken if there is actionable intelligence on high-value targets in his country.''

``I've made it clear to him that there would be full cooperation in sharing intelligence, and I believe we've got good intelligence-sharing,'' Bush said.

Iraq

On Iraq, Bush said the Iraqi government, in its effort to remake the country's laws in a way to create unity, is still is trying to overcome ``distrust'' built up under the regime of Saddam Hussein. That is part of the reason they have failed to take some of the steps, including implementing a law to share oil revenue, that the administration says are crucial to stabilizing the country, he said.

``They have made some progress, but not enough,'' Bush said. ``I fully recognize that this is a difficult assignment.''

Bush has fended off attempts by congressional Democrats to limit U.S. troop deployments or set a deadline for withdrawing troops from Iraq. Some Republicans have warned that support for Bush's policies will erode even within the party without progress toward a political resolution to the conflict.

``The fundamental question facing America is it worth it? Does it matter whether or not we stay long enough?'' Bush said. ``My answer is, it does matter.''

Iran

Bush was asked about meetings among U.S., Iraqi and Iranian officials. The U.S. has repeatedly accused Iran of training and financing insurgents in Iraq and stoking violence between the country's Shiite and Sunni Muslim communities. Iran denies the charges and is holding the latest round of security talks with Iraq.

Bush said Iran is being told ``there will be consequences'' for people sending deadly explosives to Iraq to be used against U.S. soldiers.

Iraqi Prime Minister Nuri al-Maliki is visiting Tehran today, Bush said. ``His message, I'm confident, will be: `stabilize; don't destabilize.' And the sending of weapons into Iraq is a destabilizing factor,'' Bush said.

The president began his press conference by announcing he will sign legislation intended to promote math and science training and research to keep the U.S. competitive in the global economy. The law provides $34 billion for technology training and education and incentives for basic science research.

``The American economy is the envy of the world and we need to keep it that way,'' he said.

Tax Changes

Separately, Bush said he may propose changes in the tax code to make it simpler and enhance the ability of U.S. corporations to stay competitive. That would include the possibility of cutting corporate taxes.

The government needs to ``constantly evaluate our competitive advantages and disadvantages,'' Bush said. The current tax code ``creates a competitive disadvantage and therefore it's certainly worth looking at.''

Asked about proposals to increase the federal gasoline tax to pay for repairs to bridges and roads in the wake of the collapse of an eight-lane highway bridge in Minneapolis, Bush said Congress should examine how existing funding is allocated ``before we raise taxes.''

Bush is set to leave for an extended weekend stay at his father's seaside compound in Kennebunkport, Maine. He'll have an informal meeting Aug. 11 with French President Nicolas Sarkozy, who is spending his vacation in neighboring New Hampshire.

After returning to Washington for the night on Aug. 12, Bush leaves for a two-week stay at his ranch in Crawford, Texas. He is scheduled to break up that time with a meeting with the leaders of Mexico and Canada Aug. 20-21 in Ottawa.

To contact the reporters on this story: Holly Rosenkrantz in Washington at Hrosenkrantz@bloomberg.net; James Rowley in Washington at jarowley@bloomberg.net;

Last Updated: August 9, 2007 15:02 EDT