An end to the feud between the ISI and CIA will help resolve the dispute over diplomatic immunity for Davis, besides helping both Pakistan and the US to "overcome the hard patch in their ties", the 'Dawn' newspaper reported.

Quoting unnamed sources, it said the ISI and CIA were close to a "reset in their knotty relations, with behind-the-scene negotiations reportedly making progress" and a "breakthrough is likely in the days ahead".

"There are some positive developments in ongoing negotiations," an unnamed security official was quoted as saying without specifying how much ground the two sides had covered.

He said both sides were "grudgingly accommodating each other" to save the overall bilateral relationship.

Davis, 36, was arrested in Lahore on January 27 after he shot and killed two armed men he said were trying to rob him. Police rejected his claim of acting in self defence and booked him for murder.

The Lahore High Court had yesterday declined to rule on the issue of Davis' diplomatic status and left the matter to a lower court conducting his trial on murder charges.
The Dawn reported that though there was hardly any evidence to judge the progress in the dialogue on affairs of the CIA and ISI, US embassy spokesman Alberto Rodriguez had reacted to the Lahore High Court's decision by saying: "The US position is well known and we are working with Pakistani authorities to resolve the issue."

Davis' diplomatic status remained unresolved in the High Court "because Davis is no more central to this controversy, which has been overtaken by other matters pertaining to the problematic Pakistan-US security cooperation whose bedrock is the collaboration between the ISI and CIA", the report said.

The Davis episode was the "latest manifestation of the disquiet" in ties between the spy agencies that had been going on for some time and "had found varying expressions, be it the frequent CIA allegations of Pakistanis patronising jihadi groups and being insincere in the fight against extremists or filing of a lawsuit in a New York court by relatives of the Mumbai carnage (victims) against the ISI chief or blowing the cover of CIA's Islamabad station head Jonathan Banks, leading to his recall," the report said.

The paper quoted US officials as confirming that "there had been divergences over strategic interests and timing of anti-militancy operations – a reference to the Pakistani military's reluctance to go after the North Waziristan-based Haqqani network".

"As the situation reached the tipping point and both the agencies engaged in an ugly public spat, the ISI sought a redefinition of its terms of engagement with CIA," the report said.

The ISI's complaints against the CIA included the US agency's development of a network of "undeclared spies and disregarding the ISI as an institution and sacrifices of its personnel", it said.

Analysts believe the outcome of the dialogue between the two spy agencies is crucial for settling the row over immunity for Davis.