Secretary of State Hillary Clinton denies claims the U.S. paid over $2 million in "blood money" to free a CIA contractor who shot and killed two Pakistani men.
"The United States did not pay any compensation," Clinton told reporters in Cairo, according to Reuters.
In what appeared to be carefully choreographed end to the diplomatic crisis, the U.S. Embassy said the Justice Department had opened an investigation into the killings on Jan. 27 by Raymond Allen Davis. It thanked the families for "their generosity" in pardoning Davis, but did not mention any money changing hands.
The killings and detention of Davis triggered a fresh wave of anti-American sentiment in Pakistan and were testing an alliance seen as key to defeating al-Qaida and ending the war in Afghanistan.
The tensions were especially sharp between the CIA and Pakistan's powerful Inter Services Intelligence Agency, which says it did not know Davis was operating in the country. One ISI official said it had backed the "blood money" deal. There appeared to be little public backlash as night fell in Pakistan.
Davis claimed he acted in self-defense when he killed the two men on the street in the eastern city of Lahore.
The United States had insisted Davis was covered by diplomatic immunity, but the weak government here, facing intense pressure from Islamist parties, sections of the media and the general public, refused to acknowledge the protection.
The payment of "blood money", sanctioned under Pakistani law, had been suggested as the best way to end the dispute.
Given the high stakes for both nations, few imagined either side would allow it to derail the relationship. The main question was how long it would take to reach a deal.
Punjab Law Minister Rana Sanaullah said Davis was charged with murder Wednesday in a court that was convened in a prison in Lahore, but was immediately pardoned by the families of the victims after the payment.
Reporters were not allowed to witness the proceedings.
"This all happened in court and everything was according to law," he said. "The court has acquitted Raymond Davis. Now he can go anywhere."
Raja Muhammad Irshad, a laywer for the families, said 19 male and female relatives appeared in court to accept the money.
He said each told the court "they were ready to accept the blood money deal without pressure and would have no objection if the court acquitted Raymond Davis."
Representatives of the families had previously said they would refuse any money.
Some media reports said the some of the families had been given permission to live in the United States.
Irshad said that was not discussed in court.
The case dominated headlines and television shows in Pakistan, with pundits using it to whip up hatred against the already unpopular United States. While the case played out in court, many analysts said that the dispute was essentially one between the CIA and the ISA, and that they would need to resolve their differences before Davis could be freed.
One ISI official said CIA director Leon Panetta and ISI chief Gen. Shuja Pasha talked in mid-February to smooth out the friction between the two spy agencies. A U.S. official confirmed that the phone call took place.
Pasha demanded the U.S. identify "all the Ray Davises working in Pakistan, behind our backs," the official said.
He said Panetta agreed "in principle" to declare such employees, the official said, but would not confirm if the agency had done so.
A second ISI official said as a result of that conversation the ISI -- which along with the army is a major power center in the country -- then backed an effort to help negotiate the "blood money." The officials spoke on condition of anonymity because they are not allowed to give their names to the media.