MINGORA, Pakistan - NATO warned Tuesday that Pakistan risked creating a safe haven for Islamist extremists after it struck a deal to impose Islamic law and suspend a military offensive in the former tourist haven of Swat.

Criticism of the truce mounted as a hardline cleric dispatched by the government to convince the Taliban to stop fighting as part of the deal arrived in the Swat Valley's main city of Mingora to a hero's welcome.

NATO says it has 55,000 troops across the border in Afghanistan, and many of them have come under attack by Taliban and al-Qaida fighters believed to have sought refuge in pockets of Pakistan's northwest.

"It is certainly reason for concern," NATO spokesman James Appathurai said in Brussels about the latest deal. "We should all be concerned by a situation in which extremists would have a safe haven. Without doubting the good faith of the Pakistani government, it is clear that the region is suffering very badly from extremists and we would not want it to get worse."

Britain also weighed in with reservations.

"Previous peace deals have not provided a comprehensive and long-term solution to Swat's problems," said a statement from the British High Commission in Islamabad. "We need to be confident that they will end violence -- not create space for further violence."

In Japan, Secretary of State Hillary Clinton said the Pakistani move still needed to be "thoroughly understood." She was on her first visit to Asia since taking up the post. A senior U.S. defence department official described the deal as a "negative development."

In Swat, the dispatched cleric, Sufi Muhammad, said he was hopeful the Taliban would co-operate with the agreement.

"We will soon open dialogue with the Taliban. We will ask them to lay down their weapons. We are hopeful that they will not let us down," Muhammad told reporters. "We will stay here in the valley until peace is restored."

Residents lined the route as his caravan of 300 people drove through, waving and shouting "Long live peace! Long live Islam!"

Extremists in Swat have beheaded opponents and torched scores of girls schools in recent months, while gunbattles between security forces and militants have killed hundreds. Up to a third of the valley's 1.5 million people have fled and the scenic area is now believed to be mostly under militant control.

The provincial government in northwest Pakistan announced the deal Monday after it met with Islamists led by Muhammad, who has long demanded that Islamic, or Shariah, law be followed in this conservative corner of Pakistan. As part of the deal Muhammad agreed to travel to Swat and discuss peace with Maulana Fazlullah, the leader of the Swat Taliban and Muhammad's son-in-law.

Muhammad was detained in 2002 after he sent thousands to fight U.S. troops in Afghanistan, but Pakistan freed him last year after he agreed to renounce violence. It is unclear how much influence he has over Fazlullah or exactly where they would meet, though a spokesman for the Swat Taliban leader welcomed Muhammad and has spoken positively of the truce.

The Swat Taliban said Sunday they would observe an initial 10-day ceasefire in a show of good faith.

Pakistan's inability to re-establish its authority in Swat has embarrassed the shaky civilian government and the military. However, Pakistani leaders insisted the deal was not a concession, but an attempt to fulfill demands by locals for a more efficient justice system.

"Those who want to live in a peaceful world will take steps like ours, and those who want to live in a violent world will take opposite steps," Northwest Frontier Province Information Minister Mian Iftikhar Hussain said in defence of the agreement. "The need of the hour is to put water on fire, not to fuel it."

Some 2,000 militants are believed to operate in the valley, and, in defiance of the presence of some 10,000 paramilitary and army troops, they have already set up their own courts, meting out punishments in line with an exceptionally harsh brand of Islamic law.

Similar deals struck in the past have failed, including one last year in Swat that security officials said the insurgents used to regroup and re-arm.

A senior U.S. Defence Department official, said "it is hard to view this as anything other than a negative development." He requested anonymity because of the sensitivity of relations with Pakistan and because he was not authorized to speak on the record.

Officials said the main changes to the legal system under the agreement are included in existing laws that allow for Muslim clerics to advise judges when hearing cases and the setting up of an Islamic appeals court, which they said would ensure speedier and fairer justice.

The rules do not ban female education or contain other strict interpretations of Shariah often adhered to by many Taliban.

Also Tuesday, a car bomb exploded near the residence of a local government official, killing three people and wounding 12 others on the outskirts of the main northwest city of Peshawar, police officer Sifwat Ghayur said.