* Release of prisoners among demands
* Talks at "very difficult" stage
* Previous peace bids have failed (Adds analyst, background)
By Michael Georgy and Qasim Nauman
ISLAMABAD, Nov 21 (Reuters) - Pakistan's Taliban movement, a major security threat to the country, is holding exploratory peace talks with the government, a senior Taliban commander and mediators told Reuters on Monday.
The United States, the source of billions of dollars of aid vital for Pakistan's military and feeble economy, is unlikely to look kindly on peace talks with the Tehrik-e-Taliban Pakistan (TTP), which it has labelled a terrorist group.
Past peace pacts with the TTP have failed to bring stability, and merely gave the umbrella group time and space to consolidate, launch fresh attacks and impose their austere version of Islam on segments of the population.
The discussions are focused on the South Waziristan region on the Afghan border and could be expanded to try to reach a comprehensive deal if progress is made.
The Taliban, who are close to al Qaeda, made several demands, including the release of prisoners and the withdrawal of Pakistani forces from South Waziristan, said the commander.
An ethnic Pashtun tribal mediator described the talks as "very difficult". Pakistani military and government officials were not immediately available for comment.
"Yes, we have been holding talks, but this is just an initial phase. We will see if there is a breakthrough," said the senior Taliban commander, who asked not to be identified.
"Right now, this is at the South Waziristan level. If successful, we can talk about a deal for all the tribal areas," he said, referring to Pashtun lands along the Afghan border.
The TTP, allied with the Afghan Taliban movement fighting U.S.-led NATO forces in Afghanistan, is entrenched in the unruly areas along the porous frontier.
Pakistan has come under pressure to eradicate militancy since U.S. special forces in May killed Osama bin Laden in a Pakistani town, where he had apparently been living for years.
Pakistan's government and military have said they had no idea bin Laden was in Pakistan and have yet to explain the intelligence gap.
The operation enraged Pakistan's military, which branded it a violation of sovereignty and then reduced cooperation on intelligence critical for U.S. efforts to stabilise the region as it winds down combat operations in Afghanistan.
"The U.S. won't be happy," said Rahimullah Yusufzai, a Pakistani expert on the Taliban. "If there is less pressure from Pakistan on the militants then they (the Pakistani Taliban) will turn their attention to Afghanistan."
Speculation on peace talks has been rife since the government said in a September all-party conference on a crisis in relations with the United States that it would attempt negotiations with militants to bring peace.
U.S. Secretary of State Hillary Clinton said during a visit to Islamabad last month that Washington and Pakistan should focus on getting all militants to pursue peace in Afghanistan.
Because Pakistan has a long history of ties to militants in Afghanistan, it is seen as critical to the U.S. bid to pacify the nation after ten years of war.
"The timing is linked to the change in approach in Afghanistan, where there is now a willingness to negotiate," Mansur Khan Mehsud, of Pakistan's FATA Research Centre think tank, said of the preliminary talks in Pakistan.
"The thinking here is, if it can happen in Afghanistan, why can't we talk peace with the Taliban here in Pakistan?"
Since bin Laden's death, the TTP has vowed to attack Western targets abroad.
"We never wanted to fight to begin with," said the senior Taliban commander. "Our aim was to rid Afghanistan of foreign forces. But the Pakistani government, by supporting America, left us no choice but to fight."
One of the tribal elders involved in the talks said they were at a "very difficult" stage.
"We have had three rounds in the last two months, but there seems to be no result," he said. "It is too difficult to say if there will be a breakthrough, but we are moving in the right direction."
The TTP was formed in 2007 and is blamed for many of the suicide bombings across nuclear-armed Pakistan, one of the world's most unstable but strategically important countries.
Its founder, Baitullah Mehsud, was killed by a U.S. drone aircraft missile strike in northwest Pakistan in 2009.
The group has staged audacious attacks on government installations, even army headquarters near the capital, and the violence has also killed many civilians.
While its activities have been almost entirely confined to Pakistan, the TTP has shown an interest in expanding its range under the banner of al Qaeda.
A suicide bombing at a U.S. base in Afghanistan's Khost province in 2009 killed seven Central Intelligence Agency employees. In video footage released after the attack, the bomber was shown sitting with TTP leader Hakimullah Mehsud.
A Pakistani-born American who tried to set off a car bomb in New York's Times Square last year told a U.S. court he got bomb-making training and funding from the Pakistani Taliban.
Pakistan's government reached a widely criticised peace deal with the Taliban in Swat Valley in 2009 which Washington called an abdication to the group.
(Additional reporting by Rebecca Conway; Writing by Michael Georgy)
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