By Robert Birsel

ISLAMABAD, Jan 11 (Reuters) - Pakistan rejected on Friday a call by U.S. Senate Majority Leader Harry Reid for President George W. Bush to consider cutting Pakistani aid unless it restores full civil rights and does more to fight terrorism.

Reid, a Nevada Democrat, told Bush in a letter that the assassination of opposition leader Benazir Bhutto two weeks ago had deepened worries about Pakistan's future and President Pervez Musharraf's "dismal record of performance".

Reid, who called for a full review of U.S. policy after Musharraf imposed emergency rule in November, said Bush should make aid conditional on removing limits on civil rights which remain in effect despite the lifting of the emergency in mid-December.

Reid demanded Musharraf restore freedom of the press and of association, free all political prisoners detained during the crackdown, reinstate judges dismissed in November, and support a U.N. investigation into Bhutto's death.

Foreign Ministry spokesman Mohammad Sadiq said conditions should not be put on the "very important" relationship between the two countries.

"We believe that any conditionalities attached to this relationship, or assistance, is not beneficial," Sadiq said.

"In Pakistan, decisions won't be taken because somebody demands them. They'll be taken according to our own laws and the conditions in this country," he said.

Nuclear-armed Pakistan has received about $10 billion in U.S. aid since 2001, when Pakistan abandoned support for neighbouring Afghanistan's Taliban and joined the U.S.-led campaign against terrorism after the Sept. 11 attacks on the United States.

But Musharraf's imposition of emergency rule on Nov. 3 prompted the U.S. Congress to tie aid to some conditions related to democracy and anti-terrorism.

UNPOPULAR ALLIANCE

Budget legislation withheld $50 million of $300 million in military aid for Pakistan until Secretary of State Condoleezza Rice reports to Congress that Pakistan has restored democratic rights and an independent judiciary and was making concerted efforts to fight al Qaeda and Taliban militants.

U.S. lawmakers also limited use of the remaining $250 million in military aid to counterterrorism or law enforcement activities against al Qaeda and the Taliban.

Pakistan has emerged as a hot topic in the United States as politicians compete in their parties' primaries in the run-up to a November presidential election.

U.S. politicians have raised fears about Pakistan's nuclear weapons falling into the hands of militants even though U.S. military and defence officials say the weapons are safely under Pakistani military control.

Some U.S. politicians have also called for U.S. strikes on militants in Pakistan. The New York Times said this week the U.S. government was considering expanding the authority of the CIA and the military to conduct more aggressive covert operations in Pakistan.

Musharraf, in an interview with Singapore's Straits Times newspaper, said any unilateral action by U.S.-led forces against militants in the border region with Afghanistan would be regarded as an invasion.

"I challenge anybody coming into our mountains. They would regret the day," he said.

The alliance with the United States is deeply unpopular with many Pakistanis. Some people do support al Qaeda and the Taliban, but many others, while opposed to militancy, object to what they see as Pakistan doing the bidding of the United States.

Pakistan fears allowing foreign troops to operate in its territory on the Afghan border would incite a backlash among the fiercely independent Pashtun tribes living there. (Editing by Jerry Norton)

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