ISLAMABAD - Former Pakistani prime minister Benazir Bhutto was gearing up on Friday for a January election as another opposition leader, Nawaz Sharif, hoped to persuade her to boycott the vote.

Bowing to international pressure, President Pervez Musharraf stepped down on Wednesday as army chief and on Thursday, hours after taking the oath as civilian president, promised to lift emergency rule by December 16.

He also vowed that parliamentary elections would go ahead on January 8 and urged everyone, including Bhutto and Sharif, the prime minister he toppled in 1999, to take part on what he described as a level playing field.

Bhutto's Pakistan People's Party, the country's biggest party, said it had made a very difficult decision to take part in the election while reserving the right to withdraw.

"We are taking part in the election under protest," said party spokeswoman Sherry Rehman.

The party wants the emergency Musharraf imposed on November 3 to fend off legal challenges to his rule lifted immediately. It also wants the Election Commission reconstituted and local-level government leaders suspended to ensure a fair vote.

Despite these reservations Bhutto, who returned in October from years in self-exile, is forging ahead with plans to contest the election. She was due to unveil her party's manifesto later on Friday.

Sharif, meanwhile, who ended seven years of exile on Sunday, said he and some allies had decided "in principle" to boycott the vote unless judges purged after Musharraf declared emergency rule were reinstated.

Sharif, who might be barred from running because of criminal convictions he says were politically motivated, told reporters on Thursday he would try to persuade Bhutto to join the boycott.

MORE INSTABILITY?

A united opposition boycott would rob the vote of credibility and prolong instability in a nuclear-armed country vital to U.S. efforts to fight al Qaeda and the Taliban in nearby Afghanistan.

The United States, Pakistan's biggest backer in the West, is fearful that instability will undermine those efforts.

But a boycott involving only Sharif and his allies, including the second biggest religious party and the small party of former cricket hero Imran Khan, would be likely merely to tarnish the image of the election.

And an opposition split would help Musharraf, analysts said.

"If the opposition gets divided the benefit goes to the government," said political analyst Hasan Askari Rizvi.

"But this does not mean that things will calm down. You may see phases when you think there is stability but there will not be durable stability as long as Musharraf is there."

Even without worry over the credibility of the election, Musharraf has to deal with a host of problems.

By quitting as chief of the army, which brought him to power in a military coup in 1999, he has cut himself off from his main power base, even though a loyalist is the new army chief.

He faces widespread resentment at home and the election could well install a legislature hostile enough to contemplate impeaching him over his manoeuvres to hold on to power.

The United States, meanwhile, will keep up pressure on Musharraf to tackle al Qaeda and Taliban militants operating from sanctuaries on the Afghan border who have unleashed a wave of suicide attacks in both Afghanistan and Pakistan.

Many Pakistanis appear disillusioned with everyone.

"All our leaders are corrupt -- Musharraf, Bhutto, Sharif. What have they contributed to this country? Pakistan needs a completely new generation of leaders," said Umar Arshad, 20, an IT worker in Lahore.

But investors on Pakistan's main stock market, who like Musharraf's liberal economic policies, were cheered by his decision to set a date for lifting the emergency.

The main index was 0.53 percent higher at midday.