HIS DEPARTURE FROM OFFICE WOULD BE LIKELY TO UNLEASH NEW INSTABILITY IN THE COUNTRY as the two main parties in the civilian government jockeyed for the division of power. The details of how Mr. Musharraf would exit, and whether he would be able to stay in Pakistan - apparently his strong preference - or would seek residency abroad were now under discussion, the politicians said.

While Mr. Bush has kept up his relationship with Mr. Musharraf - including regular telephone conversations - the administration has also been trying to build its relations with the new Pakistani government, as it demands greater action against militants based in Pakistan.

As president and army chief, Mr. Musharraf worked hand in hand with the United States against terrorism until last November, when he handed the army post to Gen. Ashfaq Parvaz Kayani, who promised to keep the army out of politics. Since assuming the army leadership, General Kayani has remained true to his promise. The neutrality of the military has actually tipped the scales against Mr. Musharraf, said Arif Nizami, editor of the daily newspaper The Nation.

Meanwhile, the EU yesterday agreed to send non-military "monitors" - but only on the condition that the move is first approved by the UN. The FT notes that "The fudge was necessary not only to maintain the support of the Russians but also to bridge the widening gap separating EU partners."

The FT reports that Ukraine yesterday announced restrictions on use of the Crimean port of Sevastopol by Russia's Black Sea Fleet. The surprise decree by Ukraine's pro-western President requires Russian naval vessels to request permission 10 days in advance before returning to the strategically important port, which Russia leases from Ukraine.

A separate article in the paper reports that talks on building part of a US missile defence shield on Polish soil restarted on Wednesday, with Polish officials keen to push ahead with the plan in light of Russia's Georgian intervention. Donald Tusk, the Polish Prime Minister, said this week: "The Georgian issue shows that in the generally understood area of the former Soviet bloc, real security guarantees are important."

The National Development and Reform Commission's draft rebuilding plan was published this week. State media says it calls FOR REBUILDING 3,400 PRIMARY SCHOOLS in hard-hit Sichuan province and the neighboring provinces of Gansu and Shaanxi.

The quake was China's worst natural disaster in a generation, and the state-run Xinhua News Agency reported Wednesday that the death toll was 69,225 as of Monday. At least 4,000 Children were left orphaned by the earthquake.

The United States meanwhile began sending in humanitarian aid, the first tangible results of an American response that Georgia's leader suggests has been confused and naïve. The first shipment arrived on a huge military C-17, a veiled reminder of the close U.S.-Georgia military cooperation that has angered Russia. Ministry spokesman Shota Utiashvili said that Russian troops, have also left Poti, a Black Sea port city with an oil terminal that is key to Georgia's fragile economic health.

The Russian troops on Wednesday entered Gori, about 15 miles south of South Ossetia, the separatist Georgian region where Russian and Georgian forces fought a brutal five-day battle. The entry into Gori came hours after both sides signed a cease-fire agreement that called for their forces to be pulled back to the positions they held before the fighting started a week ago.

The truce allows Russian forces to take unspecified "security measures," raising the possibility they could try to stay in Georgia proper under the justification of protecting their troops in South Ossetia. The first of two planned U.S. aid flights arrived in Tbilisi late Wednesday, carrying cots, blankets and medicine for refugees displaced by the fighting.

The pound dropped sharply on Wednesday after the Bank of England issued its gloomiest assessment yet of the health of the UK economy. Recent official figures have already shown the UK is struggling with high inflation and faltering growth. FEARS ABOUT EUROPEAN GROWTH HAVE ALSO HELPED THE DOLLAR BOUNCE BACK FROM RECORD LOWS.

The US economy is still reeling from the credit crisis but analysts say the deteriorating outlook elsewhere in the world has given the dollar a boost. Falling commodity prices have also supported the US currency. Investors had bought gold and oil to protect against dollar weakness and are now unwinding their positions.

The euro was trading at $1.4883 on Thursday, slightly above the 6-month low of $1.4815 struck earlier this week. Earlier this year, the euro was trading at $1.60. The euro has been further undermined by the military conflict in Georgia.

The US Census Bureau's latest figures - based on birth, death and immigration rates - suggest that minorities will soon make up 55% of the population. Hispanics who now make up about 15% will, it says, account for 30% by 2050. It is projected that black people will make up 15%, a small increase, while Asians will grow from 4% to 9%. White non-Hispanics currently make up about two-thirds of the population, but only 55% of those are aged under five.

It has long been said that the US is a nation of immigrants but in the past the influx has mainly come from white Europeans, the BBC's Jonathan Beale reports from Washington. By the middle of this century, that group will be in the minority for the first time, he notes. It is likely that the demographic changes will be experienced right across the country - and no longer confined to urban areas as in the past.

Overall, the US population is expected to rise from 305 million people to 439 million by the year 2050. The white population will also be ageing. The number of people over 85 years old will triple in the next 40 years. THE CENSUS BUREAU POINTS OUT THAT ITS PROJECTIONS ARE SUBJECT TO BIG REVISIONS, depending on immigration policy, cultural changes and natural or manmade disasters.

The bank, which was also facing an order to buy back from clients stressed assets worth some 18.6 billion dollars, said it would split its business into three autonomous units in a move to restructure its operations. It said any "positive sentiment seen at the end of the first quarter that the credit crisis may be easing was short-lived." Trading conditions "deteriorated significantly" in the second half of May, leading the bank to book a net loss reaching 358 million Swiss francs (221 million euros, 329 million dollars) for the second quarter.

"In the second half of this year, UBS does not expect to see any improvement in the adverse economic and financial market trends that affected this quarter's results," it said. It would therefore continue to cut jobs, costs and risks, added the bank, which counts among Switzerland's key employers. Net new money outflows also reached 43.9 billion francs during the period as clients took their assets elsewhere.

Just a year ago, UBS was practically a byword for safe, reliable and trustworthy investments. But the past 12 turbulent months have seen its shares lose 66 percent of their value, and its market capitalisation halve to 45.3 billion dollars from nearly 90 billion. The bank now ranks 25th in the world in terms of market capitalisation, with the dubious distinction of being in the top three -- behind US peers Citigroup and Merrill Lynch -- in terms of share devaluation.

Channel 2's expert on the Muslim world, Ehud Ya'ari, told viewers of the central evening newscast that Russia and neighbouring countries were vying for control of a strategic oil pipeline from the Caspian Sea to the Mediterranean. This relatively new pipeline passes through Azerbaijan and Georgia to Turkey and is the only pipeline between Asia and Europe that does not pass through Russia or Iran. Israel is expecting to receive oil and gas through the pipeline. By using the ethnic Russian population in South Ossetia to destabilize Georgia, Russia was making a play for the pipeline, he said.

The Georgian move against South Ossetia was motivated by political considerations having to do with Israel and Iran, according to Nfc. Georgian President Mikheil Saakashvili decided to assert control over the breakaway region in order to force Israel to reconsider its decision to cut back its support for Georgia's military. Russian and Georgian media reported several days ago that Israel decided to stop its support for Georgia after Moscow made it clear to Jerusalem and Washington that Russia would respond to continued aid for Georgia by selling advanced anti-aircraft systems to Syria and Iran.

Hundreds of Israeli defence experts are reportedly in Georgia and Israel's military industries have been upgrading Georgia's air force, training its infantry and selling the country unmanned aerial vehicles and advanced artillery systems. Former minister Ronny Milo was reportedly among the leading Israeli middlemen in the arms deals with Georgia and Brig.-Gen. Gal Hirsch has been training army units through a company he owns.

However, the Home Office also admitted last night that because the measure is the result of EU directive 2006/24/EC, the data will be made available to public investigators across Europe. The consultation paper published yesterday estimates that it will cost the internet industry over £50m to store the mountain of data. Although some telecommunications companies already store similar data voluntarily the EU directive makes storage of significant amounts of data mandatory across all EU states.

The Liberal Democrats' home affairs spokesman, Chris Huhne, said, "We will be told it is for use in combating terrorism and organised crime but if Ripa powers are anything to go by, it will soon be used to spy on ordinary people's kids, pets and bins". The Shadow Home secretary, Dominic Grieve, added: "Yet again the government have proved themselves unable to resist the temptation to TAKE A POWER QUITE PROPERLY DESIGNED TO COMBAT TERRORISM TO SNOOP ON THE LIVES OF ORDINARY PEOPLE IN EVERYDAY CIRCUMSTANCES".

In a letter to the Guardian Claude Moraes, a Labour MEP, criticises the lack of parliamentary scrutiny and transparency in these proposals. He concludes by saying that "radical, secretive decisions which are not scrutinised by parliaments or do not take people with them will ultimately fail".

QUITE SUDDENLY, THE NEW EASTERN MEMBERS OF THE UNION WILL BE CLAMOURING FOR SECURITY. AND IT WILL SOON BECOME APPARENT THAT THE UNITED STATES IS ENTIRELY UNWILLING TO REASSUME ITS COLD WAR ROLE AS GUARANTOR OF EUROPE'S MILITARY INTEGRITY.

The Poles and the Czechs will no longer be sceptics about the merits of the Lisbon Treaty. They will become passionate advocates for its rapid ratification... Georgia has decisively placed the security question on the agenda - raising the stakes, and putting a great deal of responsibility on Ireland to reach an accommodation with the rest of Europe that will allow the Union to move forward without another period of anxious renegotiation."

The paper notes that Poland, the Baltic countries and Sweden favour a tough line, with Warsaw seeing the issue in terms of nothing less than a battle to stop Moscow re-conquering its former empire. According to Reuters, Lithuanian Foreign Minister Petras Vaitiekunas told reporters there must be consequences for Russia's "unacceptable and un-proportional" use of force.

The country's President warned against a repeat of the 1938 Munich Agreement. British Foreign Secretary David Miliband also said Russia should realize it could pay a price for its actions. "We've got to make sure that the Russians realize that they do have rights in the international system but they must be allied with responsibilities," he said. "And when responsibilities are not upheld, there are political consequences for Russia" he added.

On the BBC Today programme, Miliband accused Moscow of "blatant aggression" against Georgia. The Economist reports that THE ITALIAN GOVERNMENT, BY CONTRAST, SAID IT WAS "CLOSE TO PUTIN'S POSITION". GERMANY IS PARTICULARLY KEEN TO MANAGE RUSSIA AS A STRATEGIC PARTNER. According to Euobserver, France's Nicolas Sarkozy said yesterday "It's perfectly normal that Russia would want to defend the interests both of Russians in Russia and Russophones outside Russia." THE WEBSITE NOTES THAT ITALY AND GERMANY ARE BOTH CONSTRUCTING MAJOR NATURAL GAS PIPELINES WITH RUSSIA.

For Russians sunning themselves on the Mediterranean, this is the plausible narrative faithfully repeated by the state-controlled media. UNFORTUNATELY, THE CONCLUSIONS THEY DRAW ARE COMPLETELY WRONG. Russia may have smashed its tiny neighbour but victory will come at a heavy price. The war will reduce rather than increase Russia's stature abroad, where the Kremlin faces growing isolation.

To judge by the language of both US presidential candidates responding to the Georgian war, forgiveness is no longer an option. DEMOCRAT OR REPUBLICAN WILL TAKE A MUCH HARDER LINE TOWARDS RUSSIA over its aggressive foreign posture, its increasingly autocratic Government and the inescapable conclusion that Mr Putin is determined to remain in power indefinitely.

The Europeans may seem divided, but behind the bland statements calling on both sides to stop the recent fighting something significant has happened. Six European leaders, five of them from the former Soviet bloc, chose to stand side by side with Mr Saakashvili yesterday as he struggled to remain in power. THE EVENTS IN THE CAUCASUS WILL ONLY SERVE TO HARDEN OPINION AGAINST RUSSIA AT NATO AND IN THE EU.

Flush with billions from the sale of oil and gas, the Kremlin may calculate that it does not need allies in the West and would rather be respected and feared than befriended. That too would be a serious mistake. For all its big-power bluster, Russia is weak and vulnerable. Russian tanks and aircraft may have smashed the fledgeling Georgian Army with ease, but most of the weaponry was Cold War-era and many of the troops conscripts. Nyone who has seen the Russian Army operating in the Caucasus knows that the military will need a generation to modernise. Meanwhile America, and its main Nato allies, are decades ahead in military technology and combat experience.

As for the economy, it is booming thanks to natural resources that account for 70 per cent of the country's wealth. But the oil price is in a state of flux. RUSSIA HAS FAILED TO DIVERSIFY. SHOULD ENERGY PRICES FALL SHARPLY, THE ECONOMY COULD COLLAPSE, as it did a decade ago. Mr Putin once described the collapse of the Soviet Union as the greatest tragedy of the 20th century. Trying to resurrect it could be the greatest folly of the 21st.

The long-awaited quarterly Inflation Report provided gloomy reading with the Bank now expecting the economy to virtually ground to a halt in the first three months of next year as the surge in petrol and utility bills eat away at consumers' spending power. The Bank expects the economy to grow just 0.1pc in the first quarter, down from a projection of just 1pc made at its last report in May. The downward revisions will be embarrassing for Chancellor Alistair Darling, who is still forecasting that the flagging economy will muster growth of 2pc this year and 2.5pc in 2009.

Mr King said that the outlook for both growth and inflation had deteriorated more sharply than it had expected when it published its last quarterly report in May. "It may still be summer but there is a feeling of chill in the economic air," Mr King said at a press conference today. "This adjustment to our economy cannot be avoided. As a result, inflation is rising and growth is slowing."

If the UK does grow at such a low level, the chance of a technical recession, with two successive quarters of contraction, is significant. MORE THAN 20,000 ADDITIONAL BRITONS CLAIMED BENEFITS IN JULY, THE BIGGEST INCREASE SINCE THE UK RECESSION IN 1992

The writedowns and credit losses at more than 100 of the world's biggest banks and securities firms rose after UBS AG reported second-quarter earnings today, which included $6 billion of charges on subprime-related assets. "IT JUST KEEPS SPREADING FROM ONE ASSET TO ANOTHER, SO IT'S HARD TO KNOW WHEN THESE WRITEDOWNS WILL STOP," said Makeem Asif, an analyst at KBC Financial Products in London. "The U.S. economy needs to stabilize first. But even then, Europe could lag and recover later. There's still a lot more downside."

The collapse of the U.S. subprime mortgage market last year has saddled banks worldwide with $501 billion of losses from declining values of securities tied to all types of home loans and commercial mortgages as well as leveraged-loan commitments.

In his most outspoken intervention on the issue of GM food, the Prince said that MULTI-NATIONAL COMPANIES WERE CONDUCTING AN EXPERIMENT WITH NATURE WHICH HAD GONE "SERIOUSLY WRONG". The Prince, in an exclusive interview with the Daily Telegraph, also expressed the fear that food would run out because of the damage being wreaked on the earth's soil by scientists' research. He accused firms of conducting a "gigantic experiment I think with nature and the whole of humanity which has gone seriously wrong".

RELYING ON "GIGANTIC CORPORATIONS" FOR FOOD, HE SAID, WOULD RESULT IN "ABSOLUTE DISASTER". "That would be the absolute destruction of everything… and the classic way of ensuring there is no food in the future," he said. "What we should be talking about is food security not food production - that is what matters and that is what people will not understand." He said that the scientists were putting too much pressure on nature. "If you are not working with natural assistance you cause untold problems. which become very expensive and very difficult to undo.

"And if they think its somehow going to work because they are going to have one form of clever genetic engineering after another then again count me out, because that will be guaranteed to cause the biggest disaster environmentally of all time." When challenged over whether he was trying to turn back the clock, he said: "I think not. I'm terribly sorry. It's not going backwards. IT IS ACTUALLY RECOGNISING THAT WE ARE WITH NATURE, NOT AGAINST IT. WE HAVE GONE WORKING AGAINST NATURE FOR TOO LONG."