The peace effort has met only limited success, and the government is back to relying on military operations in an attempt to beat back the militants.
Still, the U.S. likely will find the new government an even less predictable ally in the war on terror than Musharraf, who announced his resignation Monday in the face of impeachment threats. And his departure could bring about a power struggle and further destabilize the country.
The exit of Musharraf, who resigned as army chief in November, comes as the Taliban insurgency in Afghanistan is on the rise and attacks on U.S. and NATO forces there are becoming more sophisticated and deadly.
The U.S. and Afghanistan blame Pakistan in part, saying militants have found safe havens in its border regions and move unmolested over the frontier. They also worry that al-Qaida is regrouping in sanctuaries in Pakistan.
U.S. patience with Pakistan's efforts could diminish further, given that both main U.S. presidential contenders promise to send more troops to Afghanistan.
Defense analyst Ayesha Siddiqa expects the new government to follow the policy essentially set by Musharraf, using dialogue but also force when required to combat Islamic militancy.
"The military will continue to fight and the political government will continue to negotiate. The negotiations have to continue as it is now an issue of saving Pakistani society from the hands of the Taliban," she said.
But Ahmed Rashid, a Pakistani journalist and Taliban expert, said the ruling coalition is "far away" from a unified strategy to deal with militancy.
"The government is very unclear," he said. "It has very fragile public support. It doesn't want to lose that public support by going hard after the militants. But at the same time it knows it must do so."
Musharraf was a favorite ally of President Bush and was despised by Islamist militants. Still, the U.S. at times criticized Musharraf for not doing enough to stop the militancy, while Afghanistan harbored suspicions that Pakistan's intelligence agencies were aiding the Taliban.
Musharraf "was not someone good for Afghanistan," Afghan Interior Ministry spokesman Zemeri Bashary said. "We hope that someone good will replace him."
Militancy has strengthened on both sides of the border in recent years. Fueled by Islamist fervor, poverty, poor governance, and anger at U.S. operations in Afghanistan, the militant movement has particularly thrived in Pakistan's northwest tribal regions.
Suspected U.S. missile strikes have added to the public anger that Pakistan's sovereignty is being violated.
The U.S. may face friction with Pakistan's civilian rulers if there are future airstrikes or any sort of American ground operations in Pakistan, precisely because they are more accountable to the public than Musharraf was.
U.S. officials seem to accept that Pakistan cannot wage continuous war and are offering hundreds of millions of dollars for development projects in the border areas.
Still, in recent weeks, a Pakistani military operation against insurgents in Bajur has killed nearly 500 people and displaced more than 200,000, officials say.
Pakistani Taliban spokesman Maulvi Umar said Monday that the Islamists were happy that Musharraf had quit, but called for an end to his policies - mainly the use of the military.
"This is a positive change, but it is just the beginning," he said. "If the government ends these policies, the Taliban will stop their activities immediately."
Most analysts say such pledges are a bluff that, if accepted, will allow militants to continue the "Talibanization" of Pakistan's northwest - something Pakistani generals say they cannot allow.
Although the Pakistani military has indicated it will report to the civilian authorities, it already appears to have considerable autonomy in responding to insurgent threats.
Lt. Col. Rumi Nielson-Green, spokeswoman for the U.S. military in Afghanistan, said the U.S. military deals directly with the Pakistan military and that company-sized groups of American troops talk directly with Pakistani companies across the border.
"We don't anticipate anything changing," she said of Musharraf's exit.
For months, the president's fate has caused friction between the main parties, distracting the leadership. At the same time, the insurgents have focused on expanding their reach.
"The terrorists are not going to surrender," said Rasul Bakhsh Rais, a political analyst. "They have long-term objectives in the region."
Islamabad-based Associated Press Writer Nahal Toosi covers Pakistan and Afghanistan.