Nov. 16 (Bloomberg) -- Former Prime Minister Benazir Bhutto said Pakistan's new interim government is ``illegal'' and won't be able to ensure free and fair elections until President Pervez Musharraf lifts emergency rule.

``We reject the caretaker government as it has taken oath under emergency rule,'' Bhutto told reporters in Lahore after her release from house arrest. ``The people who have taken oath in the caretaker government have betrayed the people of Pakistan.''

Bhutto said she is working to form an ``effective coalition'' to end Musharraf's rule, or opposition parties may boycott the election due by Jan. 9. The president swore in a cabinet to prepare for the vote, saying he had introduced ``the essence'' of democracy during his eight years as military ruler.

The U.S., which regards the Pakistani president as a key ally in the fight against terrorism, also is pressing him to lift the emergency and step down as army chief. U.S. Deputy Secretary of State John Negroponte, who arrived in the capital Islamabad today, met with Pakistan's national security adviser and telephoned Bhutto.

In the phone call, Negroponte urged that ``moderate forces'' work together and ``get Pakistan back on the pathway to constitutional and democratic rule,'' State Department spokesman Sean McCormack said.

Sharing Power

Asked whether Negroponte was trying to resurrect a power- sharing agreement that Bhutto once had with Musharraf, McCormack said the U.S. has been ``very upfront and very clear that we have encouraged moderate forces'' in Pakistan such as Bhutto to work toward ``the kind of Pakistan'' that Musharraf had tried to achieve before the state of emergency.

``Our hope is, for Pakistan and for the Pakistani people, that Pakistan can resume that course,'' McCormack said.

While the U.S. regards Musharraf as ``a critical ally,'' White House spokesman Tony Fratto told reporters in Washington that ``we want him to return to the democratic path.''

Bhutto, who is leading the campaign against emergency rule, was freed from house arrest today after authorities lifted a seven-day detention order. The two-time former premier survived Pakistan's worst terror attack last month when she returned from eight years of self-imposed exile.

Interim Appointment

Mohammedmian Soomro, chairman of Pakistan's Senate since 2003, was appointed interim prime minister to prepare for the parliamentary ballot. The 342-member National Assembly was dissolved at midnight, as Prime Minister Shaukat Aziz's government became the first civilian administration to complete a five-year term.

The administration will have ``no role to play with Musharraf enjoying sweeping powers,'' said Ahsan Iqbal, spokesman for exiled former prime minister Nawaz Sharif. ``The opposition can't accept a government on which they were not consulted.''

Soomro's appointment is ``nothing more than a formality,'' said Ishtiaq Ahmed, associate professor of international relations at Quaid-i-Azam University in Islamabad.

It will be impossible for Soomro, 57, to ``perform in an impartial manner,'' said Ahmed. ``His role will be negligible as Musharraf will control everything under emergency rule.''

Musharraf, rebuffing criticism of his decision to suspend the constitution, asked the interim government to continue his policies during ``difficult times.''

`Smoothest Transition'

``I have introduced the essence of democracy in Pakistan, whether anyone believes it or not,'' Musharraf said at the swearing-in ceremony. ``This is the smoothest transition this country has ever seen.''

Opposition parties say more than 15,000 supporters have been arrested in the past two weeks. Bhutto, 54, was detained at a residence in the eastern city of Lahore on Nov. 13 to prevent her from leading protest rallies.

The opposition leader will probably travel to Islamabad today, Farzana Raja, a spokeswoman for her party, said by telephone.

Sharif remains in exile in Saudi Arabia and Imran Khan, Pakistan's former cricket captain and leader of a small opposition party, is in jail under anti-terrorism laws after saying he planned to mobilize student protests.

Legality Ruling

Musharraf, 64, imposed emergency rule on Nov. 3 as an 11- member panel of judges was about to rule on the legality of his re-election as president. He won a majority vote from national and provincial lawmakers in an Oct. 6 presidential ballot.

He fired the nation's top judge, saying the judiciary was undermining his government's fight against terrorism. The government banned public gatherings and amended the 1952 Army Act to enable authorities to try civilians in military courts.

Pakistan allowed most private news television channels to go back on air yesterday, following a 12-day blackout, after they agreed to accept a new code of conduct.

Musharraf has said he will step down as army chief and take the presidential oath as a civilian after the Supreme Court rules on his re-election.

The government is ``looking into'' lifting the emergency, the official Associated Press of Pakistan cited him as saying yesterday in Islamabad. ``We will see how long it is required in Pakistan's interest.''

`Become a Civilian'

Musharraf's ``ability to lead, to continue to be a partner in the war on terror, very much depends on how developments unfold over the next few weeks,'' U.S. Defense Secretary Robert Gates told reporters in Washington yesterday.

Musharraf ``needs to move beyond the emergency measures as quickly as possible'' and ``step out of his army chief of staff role and become a civilian,'' Gates added.

Negroponte, who is scheduled to hold talks with Pakistani officials tomorrow, ``must tell Musharraf to hold free polls,'' Bhutto said today. She said $10 billion of U.S. aid has been ``wasted in Pakistan.''

The U.S. has given Pakistan more than $10 billion in aid since 2001, mostly to the military, which is battling al-Qaeda and Taliban rebels along the mountainous border with Afghanistan.

The chairman of the Joint Chiefs, Admiral Michael Mullen, speaking at the same Pentagon news conference as Gates, said U.S. officials believe Pakistan's nuclear arsenal remains in secure hands even with the political turmoil. ``I've seen absolutely no indication to the contrary,'' he said.

Assassination Attempt

Bhutto, the first woman to be elected head of a Muslim state, returned to lead her Pakistan Peoples Party in the elections. She survived an assassination attempt in Karachi when attacks by twin suicide bombers on her homecoming rally killed 136 people.

Bhutto and Sharif have talked about ``the possibilities of joining hands,'' Bhutto's spokesman Farhatullah Babar said in a phone interview. ``Officials of the two parties can meet but a date has not been decided yet.''

Pakistani authorities arrested Sharif at Islamabad International Airport on Sept. 10 and deported him back to Saudi Arabia after he tried to return from exile to lead a campaign against Musharraf.

To contact the reporter on this story: Khalid Qayum in Islamabad at kqayum@bloomberg.net.

Last Updated: November 16, 2007 15:08 EST