Senate head appointed caretaker PM and Bhutto freed as senior US diplomat arrives.
Washington has granted $10bn in aid to Pakistan since 2001, when Musharraf pledged support to the US-led “war on terror”.
Musharraf has said that the emergency order was imposed to combat armed groups in Pakistan linked to al-Qaeda and the Taliban.
The president is under pressure due to the Pakistani army’s losses in recent fighting with pro-Taliban fighters in the Swat valley region.
The army said on Saturday that it had killed up to 40 fighters in the area but forces loyal to Mualana Fazlullah, a Muslim cleric, have captured several villages, police stations and government buildings.
Musharraf said he did not understand Washington’s concerns that he was abusing his rule, in an interview published on Saturday.
“I am the strongest believer in democracy. I brought democracy to Pakistan and I still believe in it,” he told the Washington Post.
“I will tell Negroponte and the US that Pakistan comes first and there are certain realities on the ground – extremism and terrorism – that made me decide to go with emergency law.”
Negroponte spoke to Benazir Bhutto, leader of the opposition Pakistan People’s Party (PPP), by telephone shortly after he arrived in Pakistan on Friday evening.
|Bhutto says she will not work under Musharraf’s
rule, whether he quits the army or not [AFP]
Bhutto had been freed from house arrest in Lahore hours earlier, before Musharraf swore in an interim prime minister and cabinet.
Musharraf has pledged to hold elections by January 9 but has indicated that electioneering will be held under emergency rule.
The decision to maintain emergency and suspend the constitution has angered opposition leaders who say their campaigns cannot be run effectively under the restrictions.
Bhutto has rejected the interim government and is in talks with other opposition leaders in an effort to form a united front to force Musharraf from office.
Washington had supported a mooted power-sharing deal between Bhutto and Musharraf but the PPP leader put an end to talks this week, saying she would never ally herself to the president.
Meanwhile, Pakistani authorities have sought to shut down two private Pakistani television news channels broadcasting from Dubai via satellite.
Geo and ARYOne went off air on cable on November 3, the day emergency rule was imposed, but had been available on satellite and the internet until Friday night.