According to the police, the plan was to launch murderous attacks during Independence Day celebrations on Aug. 14, hitting Musharraf, his Cabinet and the US embassy. And that close shave came only 15 days after a suicide bomber tried to blow up Shaukat Aziz, a Musharraf ally who was sworn in as Prime Minister on Aug 27.

But there is nothing in Musharraf's demeanor that shows he is rattled. With his confident, square-shouldered gait, Musharraf, 61, moves like a veteran prizefighter. When he met TIME correspondents in his Islamabad salon recently, Musharraf strode across an ornate Persian carpet clutching a memo with the names of 30 Al-Qaeda suspects whom Pakistan has helped to nab over the past two months.

This, said Musharraf, was Osama bin Laden's "second string" of terrorists: "We know who is whom and who is where. We've broken their backs." He claimed that a lode of Al-Qaeda computer disks captured in July showed that the group's leaders have contingency plans to shift operations away from the hinterlands of Pakistan to Somalia and Sudan.

And just last week, Pakistan's military said it launched an air and ground attack against a suspected Al-Qaeda training camp in the tribal area of Waziristan, killing more than 60 recruits and their Uzbek and Chechen trainers.

In Musharraf's deadly bout with Al-Qaeda, the latest round has decisively been his. But a victory bell isn't expected soon. Bin Laden is still at large. "There is a perception that we have Osama hidden somewhere," the President said, "and we'll bring him out close to the American elections. We can't. We don't have any idea where Osama is."

Al-Qaeda's No. 2, Ayman al-Zawahiri, announced on a video released last week that holy warriors, or Mujahideen, were winning the wars in Afghanistan and Iraq. Pakistan has arrested more than 550 Al-Qaeda suspects and delivered most to US investigators, but Musharraf's own intelligence officers say that dozens of the virulent, well-organized cells are still out there—and they want the President dead.

So Musharraf's seat is still a hot one. By cracking down on his main foe, Al-Qaeda, Musharraf is also creating new enemies at home. After months of prodding by the US, Musharraf has clamped down on some of the country's 13,000 registered madrassas, or seminaries, which are Al-Qaeda's richest recruiting ground in Pakistan.

A prominent imam at Islamabad's Lal Mosque, Maulana Abdul Aziz, disappeared on Aug. 13 after police captured bin Laden's former chauffeur, who had borrowed the religious leader's car, according to police. The Arab driver was allegedly involved in the Independence Day rocket plot.

"This is significant," says one Washington official. "Pakistan's engagement in the war on terror is all the more visible with these detentions." The crackdown, which began in earnest in August, has enraged the deeply conservative, Islamic sector of Pakistani society.

"My opponents say I'm America's lackey," Musharraf complains. "But I don't have the personality of a lackey. I thought this country was going down, getting destroyed." The President's aides say that Musharraf's tougher tack on homegrown extremists is, if anything, a sign of his own convictions, not a response to Washington.

His brushes with death, they say, have infused Musharraf with a sense of destiny. "He's had these miraculous escapes," one aide commented, "And now he genuinely thinks he's the chosen man for Pakistan."

Musharraf has no doubt that Al-Qaeda ordered the three assassination attempts. The mastermind, he says, was a Libyan named Abu Faraj Farj who is hiding "somewhere in the mountains," probably near Afghanistan.

But Musharraf has been forced to delay taking on domestic extremists because of their complicated history with the Pakistani government and army. Some militant organizations now allied to bin Laden were once clandestinely funded and supported by Pakistan's spy agency, the Inter-Services Intelligence (ISI), to wage war in Afghanistan and Indian-controlled Kashmir.

(In the case of the Kashmir conflict, Pakistan has always denied giving anything but moral support to the cause of Kashmiri self-determination, but militants who have fought there insist they had support from the military.)

And when young Pakistanis were recruited for fighting in either Afghanistan or Kashmir, they were pumped up with the promise of serving in a holy war to free fellow Muslims from Soviet or Indian rule.

Today, these fighters accuse Musharraf of abandoning the Islamic cause. "Musharraf has cheated us," complains one Kashmir veteran, Abu Hamza, who says that after Sept. 11, 2001, he and his fighters were left without money or logistical support by their ISI mentors. "Now everything is in the name of America, not Allah," says Hamza.

"If we are terrorists, then what about the generals and colonels who trained us?" These former combatants are well schooled in the arts of bomb assembly and assassination, learned from Al-Qaeda trainers in Afghanistan.

Musharraf says Al-Qaeda recruits its killers among Pakistan's "illiterate and semiliterate," who will blindly follow instructions, even if that means they will die. "If a man is very poor and miserable, he's vulnerable to somebody who says, 'I'll give you a key to paradise.'"

To wrench the country away from the extremists, Musharraf knows he must knock the economy back into shape. By 2010, nearly 50% of Pakistan's projected 170 million citizens will be living below the poverty line, says the World Bank. And they will be prime recruiting material for radicals.

Prime Minister Aziz, a former Citibank executive vice president, wants to coax the madrassas into teaching their 1.5 million students computer studies, English, history, math and science, along with the Koran. (Few madrassas, so far, have complied.)

Musharraf himself is a religious moderate, and so, he insists, are most Pakistanis. But Al-Qaeda sympathizers are not restricted to the slums or the madrassas Computer engineers, cops, doctors, mullahs, scientists and tribal elders have all been accused of aiding Al-Qaeda.

Most worrying for Musharraf, a few extremists may have infiltrated the armed forces, his main bastion of support. According to Islamic political activist Khaled Khwaja, authorities are currently holding six military officers and more than 50 air force servicemen as suspected Al-Qaeda supporters. The six officers were detained nearly 18 months ago and have yet to be charged, their families say.

Military officials refused to comment on this. "We're seeing the rise of Islamic populism," says one high-ranking civil servant in Islamabad.

The rallying cry of such populist sentiment in mosques, seminaries and in the radical Urdu press is anti-Americanism. The George W. Bush Administration is assailed for mounting wars in Iraq and in Afghanistan. Musharraf ranks a close second to Bush on the hate list. Islamabad is now eyeing Pakistan's mainstream religious parties with mistrust.

Former Interior Minister Faisal Saleh Hayat publicly accused "individuals" within the powerful Jamaat-e-Islami party of having sheltered top Al-Qaeda operatives in Karachi and Rawalpindi, such as bin Laden's top planner, Khalid Sheikh Mohammed, who was arrested in Pakistan in 2003.

The suspected terrorist-training camp raided by the army in Waziristan last week turned out to be inside the grounds of a madrassa belonging to a cleric of another religious party. In August, several prominent seminaries were raided in Islamabad.

For Musharraf, the battle lines are now drawn. His biggest challenge lies in the saw-blade mountain ranges along the Afghanistan border, where Al-Qaeda fighters, and perhaps bin Laden himself, have taken refuge among warrior tribes.

Washington coaxed Musharraf into sending troops to Waziristan in March when it became apparent that terrorists were using the region as a staging post for attacking US troops in Afghanistan and for infiltrating Al-Qaeda agents into Karachi, Lahore and other large cities. The army has taken dozens of casualties while venturing into Waziristan's twisting ravines but has also managed to dislodge Al-Qaeda groups from their mountain fortresses.

Yet Pakistan, says one Western diplomat in Islamabad, may be too valuable for Al-Qaeda to vacate. And the operations in Waziristan have polarized the country even more. A group of preachers recently issued a fatwa proclaiming that any soldier killed while fighting Al-Qaeda and its tribal allies would be denied a proper Muslim burial.