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LAHORE, Pakistan (Reuters) - A CIA contractor was acquitted of two murder charges and released by a Pakistani court on Wednesday after a deal to pay "blood money" to the victims' families, Pakistani and U.S. officials said.
The deal, reached just hours after the American contractor had been indicted, ends a long-simmering diplomatic standoff between Pakistan and the United States.
"The court first indicted him but the families later told court that they have accepted the blood money and they have pardoned him," Punjab Law Minister Rana Sanaullah told Reuters.
"The court acquitted him in the murder case."
Raymond Davis, 36, shot dead two Pakistanis in the eastern Punjab city of Lahore on Jan. 27 after what he described as an attempted armed robbery. The United States had repeatedly called for his release, saying he had diplomatic immunity.
"The families of the victims of the January 27 incident in Lahore have pardoned Raymond Davis. I am grateful for their generosity," U.S. Ambassador Cameron Munter said. "I wish to express, once again, my regret for the incident."
Secretary of State Hillary Clinton, speaking while on a trip to Cairo, said the U.S. government did not pay any compensation to the families of the two Pakistanis.
Asked if the Pakistani government had paid compensation, Clinton said: "You will have to ask the Pakistani government."
A U.S. official speaking on condition of anonymity said Davis was quickly flown out of Pakistan. Despite the reported payment of the "blood money," he insisted there had been "no quid pro quo." He declined to elaborate.
A U.S. national security official closely monitoring the Davis case and who declined to be identified said that if the Pakistani government paid the compensation they likely will seek reimbursement from the U.S. government.
The case became a major test of ties between the United States and Pakistan, a vital ally in the U.S.-led campaign against Taliban militants in Afghanistan.
It is likely to have a lasting impact on how the U.S. Congress, already suspicious of Pakistan's commitment to defeating some militants groups in Afghanistan, views a government that is a major recipient of U.S. military and civilian aid.
Republican lawmaker Dana Rohrabacher, a member of the party that controls the U.S. House of Representatives, said the Davis case "should suggest we take a close look at the fundamentals of who we give our aid to and whether or not they are our friends, or whether they are treating us like suckers."
But CIA spokesman George Little said the resolution of the case showed that ties between the United States and Pakistan are strong. "That's the sign of a healthy partnership -- one that's vital to both countries, especially as we face a common set of terrorist enemies."
Analysts said Pakistan's government faced the risk of a backlash. Talat Masood, a retired general, said some groups in Pakistan could use the case to their advantage.
"Some elements will take advantage of it (such as) opposition parties, even if it's only for rhetoric to gain points. With the religious parties and militant groups, they might use it to expand their reach."
The country's powerful religious parties had tried to block such a deal, calling for Davis to be hanged, and the families' lawyer suggested they had been forced to sign the papers.
"We were put in detention for four hours and not allowed to meet our clients who were called by authorities to the court," Asad Manzoor Butt, a lawyer for the family of one of the slain men, told Reuters.
Religious parties condemned the release.
"We will protest against this. This is shameful and unfortunate," said Amir-ul-Azeem, a senior leader of the hardline Islamic party Jamaat-e-Islami.
There had been speculation that a deal was in the works between the United States and the families of the dead men, including a third killed when a U.S. consulate vehicle struck him while trying to extract Davis from the scene.
Such payments are sanctioned by Islamic law and are common in some parts of rural Pakistan as a way to settle disputes.
The identity of the victims has been questioned from the outset, with some media reports saying the men worked for Pakistan's Inter-Services Intelligence agency. Others have suggested they attempted to rob Davis.
The case also strained ties between the CIA and ISI, which said it was unaware Davis was working in Pakistan.
Additional reporting by Rebecca Conway in Islamabad; and Mark Hosenball, Phil Stewart, Susan Cornwell and Andrew Quinn in Washington; Editing by Eric Beech