ISLAMABAD (Reuters) - U.S. Secretary of State Hillary Clinton announced more than $500 million in new aid projects for Pakistan on Monday, which Washington hopes will help win over a sceptical public in an ally vital to winning the war in neighbouring Afghanistan.
Clinton is in Islamabad for two days as part of the U.S.-Pakistan strategic dialogue, a series of talks aimed at strengthening the relationship between the wary allies in the struggle against al Qaeda and the Taliban.
"For too long our two countries have been hampered by a trust deficit which has held us back. We understand the reasons for that and we accept responsibility for the role that our actions have played. But we need to rebuild that trust," she said at a town hall meeting.
Earlier, at a joint news conference with Pakistani Foreign Minister Shah Mehmood Qureshi, she said: "We have moved beyond a standoff of our misunderstandings that were allowed to fester and not addressed ... to a position where we're engaged in the most open dialogue that I think our two countries have ever had."
Clinton will later fly on to Kabul for an international conference as the U.S.-led war in Afghanistan runs into mounting doubt in the U.S. Congress.
The Pakistan and Afghan commerce ministers signed a trade deal during her visit that the United States also hopes will help boost cooperation between the countries.
For Pakistan, she announced a string of new projects -- including dams, power generation, agricultural development and hospital construction -- funded under U.S. legislation passed last year tripling civilian aid to $7.5 billion over the next five years.
The projects, the first to be launched under a new aid plan, are seen as crucial to shoring up support for the U.S.-led struggle against militants in a country where opinion polls show fewer than one in five view the United States favourably.
"The opinion about the United States in Pakistan will change when the people of Pakistan see how, through this partnership, their lives have changed," Qureshi said.
Pakistan also wants enhanced market access, strengthening of its anti-terrorism resources and "non-discriminatory access" to energy and other technology.
The latter two requests are long-standing Pakistani desires for more military equipment and a civilian nuclear deal like the one between India and the United States.
Pakistan is also seeking a nuclear deal with China, a topic that came up Clinton's town hall, where she was asked about lukewarm U.S. support for any nuclear agreements.
Clinton said the United States would continue to look into broadening civil nuclear cooperation, but said Pakistan's chequered history on proliferation issues "raises red flags" and concerns that need to be addressed.
A U.S. Embassy official said the audience was selected from various groups and individuals who have contact with the embassy, including aid contractors and grant recipients.
HISTORY OF MISTRUST
The Obama administration sees nuclear-armed Pakistan as a pivotal player in the struggle against militant Islamist groups in both countries. But the two sides are divided by a history of mistrust and sometimes diverging goals over a war that is increasingly unpopular.
Opinion polls have shown many Pakistanis doubtful about long-term U.S. intentions, citing examples of abandonment, particularly after the Soviets withdrew from Afghanistan.
U.S. officials, meanwhile, are wary of the role Pakistan is playing in Afghanistan and believe it needs to do more to fight its own homegrown Taliban militants, which Washington blames for the attempted bombing in New York's Times Square on May 1.
Pakistan and Afghanistan are both seeking to encourage some elements of the Taliban to reconcile with the Afghan government by renouncing al Qaeda, laying down their arms and taking part in the Afghan political process.
But the United States is doubtful the Haqqani network -- considered one of the most brutal and effective factions of the insurgency -- can be persuaded to do so.
"There will be some who are willing to meet those conditions and others who are not," Clinton said. "We would strongly advise our friends in Afghanistan to deal with those who are committed to a peaceful future."
(Additional reporting by Zeeshan Haider and Kamran Haider; Editing by Chris Allbritton and Alex Richardson)