President Gen. Pervez Musharraf is discussing whether to quit as army chief before upcoming elections, the government said Thursday, rejecting a rival's claim that the decision has already been made.

The dispute suggests that talks between Musharraf and ex-premier Benazir Bhutto to share power and ramp up Pakistan's effort against extremism remain on a knife's edge.

An announcement by another former prime minister, Nawaz Sharif, that he will return to Pakistan on Sept. 10 in defiance of Musharraf added to the uncertainty about Pakistan's political direction.

Asked at a news conference about a claim from Bhutto that Musharraf had decided to leave his military post and that she expected him to take the step before the vote, spokesman Mohammed Ali Durrani said: "No decision has been made."

"When he will decide, he will announce it," Durrani said at a news conference.

Musharraf, the U.S.-allied general, and former Prime Minister Benazir Bhutto are negotiating an agreement that could end military rule eight years after Musharraf seized power in a coup and see him share power with the opposition.

Bhutto told The Associated Press on Wednesday that she was "very pleased that Gen. Musharraf has taken the decision to listen to the people of Pakistan by taking the decision to take off the uniform."

"I expect that he will step down (as army chief) before the presidential elections, but that is for the president to say," she said.

Durrani, the government's information minister, stopped short of denying that Musharraf was prepared to step down as army chief as part of a possible agreement.

"We have spoken with the president on this issue. I spoke with him even today ... he will decide it himself and in the light of the constitution and law," Durrani said.

At stake is a pact that would protect Musharraf's troubled re-election bid from looming legal challenges and public disenchantment with military rule. In return, Musharraf is expected to give up his role as army chief and let Bhutto return from exile in London to contest year-end parliamentary elections.

Officials on both sides have suggested they were close to finalizing an agreement.

Musharraf has insisted that the constitution allows him to be army chief until the end of 2007 but has never made clear when — or if — he will step down.

However, Bhutto and other opposition leaders argue the constitution obliges him to give up that post before he asks lawmakers for a fresh presidential mandate in September or October.

Bhutto said that while Musharraf had also agreed to drop corruption charges against her and dozens of other parliamentarians, a remaining stumbling block is the balance of power between Parliament and the president, who can currently dismiss the prime minister and dissolve the legislature.

Durrani said the article, introduced after the 1999 coup that brought Musharraf to power, "facilitated the continuity of a democratic system in the country and is a safety value against martial law."

But Bhutto's Pakistan People's Party "cannot compromise on this," party spokesman Farhatullah Babar told AP. "We make it very clear that the president should have no powers to dissolve the Parliament."

Any climbdown would compromise Bhutto's claims to be acting in the interests of democracy and cost her votes in year-end parliamentary elections.

Conservative Religious Affairs Minister Ijaz-ul Haq accused Bhutto of blackmailing Musharraf and of working "against Islam, against Pakistan." He said on Geo news television that any deal could collapse amid "ideological differences" and reservations about waiving corruption charges against her.

The minister is the son of Gen. Zia-ul Haq, who ousted Bhutto's father as prime minister and saw him executed on murder charges in 1979 during Pakistan's previous spell of military rule.

Musharraf has seen his authority erode since March, when he tried unsuccessfully to remove the Supreme Court's top judge. The move triggered protests that grew into a broad pro-democracy campaign.

The court reinstated the judge in July, raising expectations that it will uphold legal challenges to Musharraf's re-election plan.

The proposed pact with Bhutto includes constitutional amendments to forestall those challenges.

Last week, the court ruled that Nawaz Sharif, the prime minister toppled in 1999 who is also living in exile, can return to Pakistan.

Sharif, who denounces Musharraf as a tyrant, said Thursday in London that he would return on Sept. 10, despite warnings from officials that he could be arrested upon arrival.

The prospect of his tumultuous return adds to the urgency of an accommodation between Musharraf and Bhutto, who share a relatively liberal, pro-Western outlook and stress the need to prevent the political crisis from destabilizing the nuclear-armed nation.

Musharraf had vowed to prevent either former leader from re-entering Pakistan. He blames them for the corruption and economic problems that nearly bankrupted the country in the 1990s, when Bhutto and Sharif each had two short-lived turns as prime minister.

But with the United States pressing for more democracy as well as a redoubled effort against al-Qaida and Taliban militants near the Afghan border, Musharraf recently began calling for political reconciliation and an alliance of moderates.

In Washington, State Department spokesman Tom Casey declined Thursday to comment on whether Washington wanted Musharraf to give up his army post.

But he said the U.S. wanted Pakistan's intense political debate to result in free and fair elections and a government that continues to be "a force to help work with us to fight against extremism."