Intelligence chief who 'turned a blind eye' to notorious neighbour

Speaking to a passing out parade at Pakistan's equivalent of Sandhurst, General Ashraf Kayani was expansive. His forces had "broken the back" of Islamist militancy. "Inshallah, we shall prevail," he declared.

If he had been sunning himself on the balcony of his million-dollar mansion on that day, Osama Bin Laden would have had little difficulty hearing the army chief decry Western claims that Pakistan's intelligence and military communities harboured terrorists. The head of al-Qa'ida had for several years been living close to the gates of the Kakul Military Academy, which also housed members of the ISI, Pakistan's secret police, supposedly close allies of the CIA and MI6.

It may seem scarcely believable, to most observers, that the head of Pakistan's military would be unaware that the world's most-wanted terrorist was living in Abbottabad, a garrison town. The general's focus on the "success" of his counter-terrorist policy would look like an exercise in black humour directed at the US and the West, who have given his forces billions of dollars to hunt down Bin Laden and his network.

Yesterday, in an article in the Washington Post, the Pakistani President Asif Ali Zardari said: "He [Bin Laden] was not anywhere we had anticipated he would be, but now he is gone," without offering any further explanations. The country's Foreign Minister, Salman Bashir, told a news conference in Islamabad, 35 miles from where the al-Qa'ida leader was found: "Who did what is beside the point... The issue of Osama bin Laden is history."

While in Washington senators and congressmen were insisting that this latest, and by far the most serious, charge of Pakistan's complicity with Islamic terrorism cannot be swept under the carpet, in London David Cameron emphasised the need for supporting the country's faltering democratic institutions and that he accepted statements by Mr Zardari and his Prime Minister, Yusuf Raza Gilani, that they did not collude with terrorism.But neither the President nor the Prime Minister are considered to be as powerful as General Kayani in Pakistan.

When, under American pressure the Pakistani government attempted to put the ISI – which, according to published WikiLeaks cables, it had designated a "terrorist organisation" – under the control of the Interior Minister, Rehman Malik, the move was stopped within 24 hours by General Kayani. The general, a former head of ISI, insisted that the organisation remain under military – in effect, his – control, with a protégé, General Ahmed Shuja Pasha. as the nominal head. Thus when the chairman of the US Joint Chiefs of Staff, Admiral Mike Mullen, charged that "the ISI has a long-standing relationship with the Haqqani network", an al-Qa'ida linked organisation carrying out attacks in Afghanistan, the finger was being pointed at General Kayani.

Evidence of the growing enmity between the military in the two countries was highlighted by General Kayani's repost that he "strongly rejected negative propaganda of not doing enough" to combat Islamist violence and also criticised drone attacks by the US in Pakistani sovereign territory.

The Americans continued to accuse the ISI of duplicity. It was another episode of this double-dealing while the hunt for Bin Laden was under way which, say some US officials, reinforced their decision not to share information about the al-Qa'ida leader with the Pakistanis. Early last year Mullah Abdul Ghani Baradar, the Taliban's operational commander, had begun what was seen as promising talks towards a ceasefire with the Afghan government.

They were taking place without the involvement of the Pakistanis and excluded the Haqqani network and, according to American sources, the ISI found out about the talks and set about sabotaging them by trying to arrest Baradar who, fearing precisely this, had disappeared on returning to Pakistan. The Pakistanis then approached the CIA for help with electronic surveillance in their search for a "high-value target", without giving much further details. The CIA supplied the technical expertise and Baradar was arrested in Karachi. The Americans, on finding out the identity of the captive, asked for access to him and were denied. Baradar has since been released but operates, according to Western officials, on a short ISI leash.

Pakistani officials maintain that much of the Western criticism is unfounded and point to a sheer number of arrests of al-Qa'ida figures in Pakistan, including that of Khalid Sheikh Mohammed, the man who confessed, albeit after "waterboarding", to masterminding the 9/11 attacks. They also point out that an important Indonesian al-Qa'id linkman, Umar Patek, was arrested in Abbottabad, proving that the town was not being used as safe-house for jihadists.

The US acknowledges that vital evidence about the location of Bin Laden's trusted courier, which eventually led them to the al-Qa'ida head, came from Pakistani sources, although they insist not from the ISI or the military. But a steady stream of information has been going to the Americans, not least to carry out drone strikes, sometimes targeting so-called Pakistani allies, which indicates that there are those within the security establishment not towing the ISI line.

What happens in the future may depend to a large extent on General Kayani. There is talk of a "Kayani doctrine" in which he is said to hold that the military and the ISI are the only viable forces that can hold Pakistan together. A majority of the 11 corps commanders are said now to question whether the US alliance brings more problems than benefits and a large number of middle-ranking officers are sympathetic towards Islamist militants. An overwhelming number are opposed to the American drone strikes which have so far claimed almost 2,000 lives inside Pakistan.

The tense and fragile alliance between the US and Pakistan, enmeshed in secrets and lies, is likely to take a long time to recover from the fallout over what brought about its existence in the first place, the hunt for Osama bin Laden.