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* Read story in multimedia PDF link.reuters.com/nah53t
* Sunni radical LeJ group expanding reach across Pakistan
* Targets Shias, aiming to provoke Iraq-like civil war
* Pakistan intelligence says it gets Saudi funding
* Pakistan a proxy battleground for Iran-Saudi influence
* Sectarian attacks change way of life in affected towns
By Michael Georgy
GILGIT, Pakistan, Oct 24 (Reuters) - About 20 men dressed as Pakistani soldiers boarded a bus bound for a Muslim festival outside this mountain town and checked the identification cards of the passengers. They singled out 19 Shi'ites, drew weapons and slaughtered them, most with a bullet to the head.
The shooters weren't soldiers. They were a hit squad linked to the Sunni Muslim extremist group Lashkar-e-Jhangvi, or LeJ. They had trekked in along a high Himalayan pass that hot August morning to waylay a convoy of pilgrims.
Here and across Pakistan, violent Sunni radicals are on the march against the nation's Shi'ite minority.
With a few hundred hard-core cadres, the highly secretive LeJ aims to trigger sectarian violence that would pave the way for a Sunni theocracy in U.S.-allied Pakistan, say Pakistan police and intelligence officials. Its immediate goal, they say, is to stoke the intense Sunni-Shi'ite violence that has pushed countries like Iraq close to civil war.
More than 300 Shi'ites have been killed in Pakistan so far this year in sectarian conflict, according to human rights groups. The campaign is gathering pace in rural as well as urban areas such as Karachi, Pakistan's biggest city. The Shi'ites are a big target, accounting for up to 20 percent of this nation of 180 million.
In January, LeJ claimed responsibility for a homemade bomb that exploded in a crowd of Shi'ites in Punjab province, killing 18 and wounding 30. LeJ's reach extends beyond Pakistan: Late last year, LeJ claimed responsibility for bombings in Afghanistan that killed 59 people, the worst sectarian attacks since the fall of the Taliban government in 2001.
"No doubt - (LeJ) are the most dangerous group," said Chaudhry Aslam, a top counter-terrorism police commando based in Karachi, whose house was blown up by the LeJ. "We will fight them until the last drop of blood."
For an outlawed group accused of fomenting such mayhem, the leader of LeJ is surprisingly easy to find.
Malik Ishaq spent 14 years in jail in connection with dozens of murder and terrorism cases. He was released after the charges could not be proved - partly because of witness intimidation, officials say - and showered with rose petals by hundreds of supporters when he left prison in July 2011.
Although Ishaq is one of Pakistan's most feared militants, he enjoys the protection of followers clutching AK-47 assault rifles in the narrow lane outside his home. There, in the town of Rahim Yar Khan in southern Punjab province, Reuters visited him for an interview.
"The state should declare Shi'ites as non-Muslims on the basis of their beliefs," said Ishaq, calling them the "greatest infidels on earth." Young supporters with shoulder-length hair in imitation of the Prophet Mohammad hung on every word.
To assess the LeJ threat, Reuters followed the group's trail across Pakistan - from Ishaq's compound, to Gilgit in the foothills of the Himalayas, recruiting grounds in central Punjab, and the backstreets of Karachi on the Arabian Sea coast.
In interviews, police, intelligence officials, clerics and LeJ members described a group that has grown more robust and appears to be operating across a much wider area in Pakistan than just a few years ago. But it had a head start.
The LeJ once enjoyed the open support of the powerful spy agency, the Directorate for Inter-Services Intelligence. The ISI used such groups as military proxies in India and Afghanistan and to counter Shi'ite militant groups.
Since being outlawed after the attacks of Sept. 11, 2001, LeJ has worked with Sunni radical groups al Qaeda and the Pakistani Taliban in several high-profile strikes. Among them were assaults in 2009 on Pakistan's military headquarters and on Sri Lanka's visiting cricket team. Washington says LeJ was involved in the killing of Wall Street Journal correspondent Daniel Pearl in 2002.
Now it is gathering strength anew. The risks are heightened by Pakistan's long-standing role as a battlefield in a proxy war between Sunni Saudi Arabia and Shi'ite Iran, which have been competing for influence in Asia and the Middle East since the 1979 Iranian revolution.
That competition has heated up since the United States toppled secularist dictator Saddam Hussein in Iraq and left the country under the control of an Iranian-influenced Shi'ite government. Intelligence officials say the LeJ is drawing financial support from Saudi donors and other Sunni sources.
"Unfortunately, the state for strategic reasons turned a blind eye to the LeJ for a long time," said a retired army general. "Now we have a situation where it has become Pakistan's Frankenstein."
Interior Minister Rehman Malik, who is in charge of internal security, told Reuters that "we always take action" against the LeJ when the group is suspected of murder or terrorism. "We track people and arrest them."
When asked why those arrested are often freed, he said: "Look, my job is to arrest people, not to let them go. We all know who lets them off the hook and why," he said, referring to local politicians and elements of the military who turn a blind eye to their activities or even support them in some cases.
Lashkar-e-Jhangvi, whose name means Soldiers of Jhangvi (after its founder, Haq Maulana Nawab Jhangvi), isn't the only lethal militant group that once enjoyed patronage from the spy agency.
One is Lashkar-e-Taiba (Soldiers of the Pure), which fights against Indian control in disputed Kashmir. It is blamed for several deadly attacks on Indian soil, including the November 2008 attacks in Mumbai, and an audacious raid on India's parliament in December 2001 with another Kashmiri militant group, Jaishi-e-Mohammad (Army of Mohammad). That raid brought India and Pakistan to the brink of war.
Another is the Pakistani Taliban. Its attack this month on 14-year-old Malala Yousafzai in Swat was only the most recent in a long list of strikes on civilian and military targets, mainly in the unruly tribal area along the Afghan border.
What makes LeJ particularly dangerous, however, is that the group is based in Pakistan's Punjab heartland. And it is not just attacking targets in Pakistan's neighbours, but has also targetted the state, including the 2009 attack on Pakistan's military headquarters.
LeJ was established as an offshoot of another anti-Shi'ite organisation called Sipah-e-Sahaba (Soldiers of Mohammad's Companions).
LeJ believes it has a sacred calling - to protect the legacy of the companions of the Prophet Mohammad - and it sees Shi'ites as the main threat.
Mahmood Baber, educated in a madrassa, was drawn by LeJ's call to holy war against Shi'ite infidels. His 16-year career in the movement ended in October, when he and other LeJ members were arrested.
Handcuffed and with a cloth thrown over his head at a Karachi police station, Baber described for Reuters the "great satisfaction" he felt killing 14 Shi'ite "terrorists" over the years. His voice choked with emotion when he said that for 1,400 years Shi'ites had insulted the companions of the Prophet.
"Get rid of Shi'ites. That is our goal. May God help us," he said, before intelligence agents led him away for a fresh round of interrogation.
The schism between Sunnis and Shi'ites developed after the Prophet Muhammad died in 632 when his followers could not agree on a successor. Sunnis recognize the first four caliphs as his rightful successors; the Shi'ites believe the prophet named his son-in-law Ali. Emotions over the issue have boiled through modern times and even pushed some countries, including Iraq five years ago, to the brink of civil war.
The LeJ's leader, Ishaq, lives in a house whose gate bears a sign inviting residents of the town to debate whether Shi'ites are infidels.
These days Ishaq calls himself a leader of Sipah-e-Sahaba, the LeJ parent group. Pakistani officials say he still runs, or at least inspires, LeJ. Ishaq denies any wrongdoing, repeatedly saying: "I've been acquitted." He has indeed been acquitted 34 times on charges of culpable homicide and terrorism.
He does not hide his feelings about Shi'ites, his voice growing strident as he opened a plastic folder filled with printouts from what he describes as Shi'ite Internet sites.
One contained a photo of a pig, an animal considered by Muslims to be dirty, and is accompanied by an insult to Sunnis. Another alleges the Prophet Mohammad's wife committed adultery - all proof, he says, that Shi'ites are blasphemous, and deserve punishment.
"Whoever insults the companions of the Holy Prophet should be given a death sentence," Ishaq declares.
Ishaq and other hardline Sunnis believe that Iran is trying to foment revolution in Pakistan to turn it into a Shi'ite state, though no evidence for that is offered.
In the Punjab town of Jhang, LeJ's birthplace, SSP leader Maulana Mohammad Ahmed Ludhianvi describes what he says are Tehran's grand designs. Iranian consular offices and cultural centres, he alleges, are actually a front for its intelligence agencies.
"If Iranian interference continues it will destroy this country," said Ludhianvi in an interview in his home. The state provides him with armed guards, fearful any harm done to him could trigger sectarian bloodletting.
The Iranian embassy in Islamabad, asked for a response to that allegation, issued a statement denouncing sectarian violence.
"What is happening today in the name of sectarianism has nothing to do with Muslims and their ideologies," it said.
Ludhianvi insisted he was just a politician. "I would like to tell you that I am not a murderer, I am not a killer, I am not a terrorist. We are a political party."
After a meal of chicken, curry and spinach, Ludhianvi and his aides stood up to warmly welcome a visitor: Saudi Arabia-based cleric Malik Abdul Haq al-Meqqi.
A Pakistani cleric knowledgeable about Sunni groups described Meqqi as a middleman between Saudi donors and intelligence agencies and the LeJ, the SSP and other groups.
"Of course, Saudi Arabia supports these groups. They want to keep Iranian influence in check in Pakistan, so they pay," the Pakistani cleric said. His account squared with that of a Pakistani intelligence agent, who said jailed militants had confessed that LeJ received Saudi funding.
Saudi cleric Meqqi denied that, and SSP leader Ludhianvi concurred: "We have not taken a penny from the Saudi government," he told Reuters.
Saudi Arabia's alleged financing of Sunni militant groups has been a sore point in Washington. U.S. Secretary of State Hillary Clinton warned in a December 2009 classified diplomatic cable that charities and donors in Saudi Arabia were the "most significant source of funding to Sunni terrorist groups worldwide." In the cable, released by Wikileaks, Clinton said it was "an ongoing challenge" to persuade Saudi officials to treat such activity as a strategic priority. She said the groups funded included al-Qaeda, the Taliban and Lashkar-e-Taiba.
The Saudi embassy in Islamabad and officials in Saudi Arabia were unavailable for comment.
Some Shia groups do look to Iran's clerical establishment for spiritual leadership, but insist they have no aims beyond protecting members from Sunni attacks.
In the offices of a Shi'ite organisation in Karachi, images of the late Iranian leader Ayatollah Ruhollah Khomeini are featured on a wall clock. There, a Pakistani Shi'ite woman named Shafqat Batool described what happened to her son, a judge, when he left for work on August 30.
Minutes after Sayid Zulfiqar stepped out of the family home in Quetta, she said, witnesses told the family three men on a motorcycle opened fire with Kalashnikov rifles. One of the assailants then grabbed a weapon from Zulfiqar's bleeding driver and pumped more bullets into her son.
It prompted Zulfiqar's family to move to Karachi. "We are not safe anywhere in the country," his mother said. "People are horrified, people can't sleep."
The fear is palpable in Quetta, the mountainous provincial capital of southwestern Baluchistan. LeJ has unleashed an escalating campaign there of suicide bombings and assassinations against ethnic Hazaras - Persian-speaking Shi'ites who mostly emigrated from Afghanistan and are a small minority of the Shi'ite population in Pakistan.
At least 100 Hazaras have been killed this year, according to Human Rights Watch, leaving some 500,000 Hazaras fearful of venturing out of their enclaves.
"We are under siege; we can't move anywhere," said Khaliq Hazara, chairman of the Hazara Democratic Party. "Hazaras are being killed and there is nobody to take any action.
In Quetta and Karachi, Shi'ite leaders say they are urging young men to exercise restraint and buy weapons only for self-defence.
"We are controlling our youth and stopping them from reacting," said Syed Sadiq Raza Taqvi, a Karachi cleric, seated beside a calendar with images of Iranian Revolutionary Guards.
But with each killing, the temptation to take revenge grows.
Shi'ite extremists have not adopted the kind of attacks favoured by LeJ. But they have hunted down members of the SSP.
One such case was an attack survived by Sohaib Nadeem, 27, son of an SSP member. Men he described as "Shi'ite terrorists backed by Iran" opened fire on the Nadeem family in their car. Nadeem survived nine gunshot wounds but his father and brothers were killed. "The Shi'ites are our enemies," Nadeem said.
When the Taliban and al Qaeda want to reach targets outside their strongholds on the Afghan border, they turn to LeJ to provide intelligence, safe houses or young volunteers eager for martyrdom, police and intelligence officials said.
"Lashkar-e-Jhangvi is the detonator of terrorism in Pakistan," said Karachi Police Superintendent Raja Umer Khattab, who has interrogated more than 100 members. "The Taliban needs Lashkar-e-Jhangvi. Al Qaeda needs Lashkar-e-Jhangvi. They are involved in most terrorism cases."
The massacre of Shi'ite bus passengers outside Gilgit has had a profound impact on this mountaineering hub in the Himalayan foothills. Never before had Sunni extremists asked for identification to single out Shi'ites and then kill them on such a large scale.
Sunnis and Shi'ites, who had lived in harmony for decades, now cope with sectarian no-go zones.
"Sunnis can't go to some areas and Shi'ites can't go to others," lamented Gilgit shopkeeper Muneer Hussain Shah, a Shi'ite whose brother was killed in a grenade attack.
When violence erupts, text messages circulate rallying one sect or the other. Shops and schools close. Authorities have banned motorcycles to stop drive-by shootings.
Law enforcement itself is a victim of sectarianism in Gilgit, said police chief Usman Zakria. Shi'ite officers are reluctant to investigate crimes committed by Shi'ites, and the same is true of Sunnis.
"They are in disarray," said Zakria. "None of this has happened before." (Additional reporting by Imtiaz Shah in KARACHI, Mehreen Zahra-Malik in ISLAMABAD and Matthew Green in QUETTA; Editing by Bill Tarrant and Michael Williams)