Suicide attackers shot their way past guards and set off a massive blast outside a luxury hotel popular with foreigners and affluent Pakistanis, killing at least 11 people and wounding 70, including a British aid worker.
The bombers struck the Pearl Continental Hotel in Peshawar yesterday at about 10pm local time, when nightlife was still in swing.
The attack reduced a section of the hotel to rubble and twisted steel and left a huge crater in a car park.
The blast came a week after Taliban leaders warned they would carry out major attacks in large cities in retaliation for an army offensive to reclaim the nearby Swat Valley region from the militants.
No claim surfaced immediately for the bombing in Peshawar, the north-west's largest city with about 2.2 million people.
Earlier yesterday, officials said Pakistan's military engaged militants on two fronts elsewhere in the north west. The army dispatched helicopter gunships in support of citizens fighting the Taliban in one district and used artillery fire against militants in another after sympathetic tribal elders refused to hand them over.
Neither operation was anywhere near the size of the military's offensive in the Swat Valley, where 15,000 troops have battled up to 7,000 Taliban fighters.
But the battles on Monday and yesterday in the Upper Dir and Bannu districts suggest that pockets of pro-Taliban sentiment remained strong in some areas, while the militants' form of hardline Islam is unpalatable in others - particularly because of the violence used to enforce it.
Peshawar lies in between the two districts. The Pearl Continental, affectionately called the "PC" by Pakistanis, the ritziest hotel in the city, overlooks a golf course and a historic fort. It is relatively well guarded and set far back from the main road.
Police spokesman Liaqat Ali said witnesses gave vivid accounts of how the bombers carried out their attack.
Three men in a pick-up truck approached the hotel's main gate, opened fire at security guards, drove inside and detonated the bomb close to the building, he said.
A senior police officer, Shafqatullah Malik, said the truck contained more than half a ton of explosives.
The chaotic scene echoed a bombing last year at Islamabad's Marriott Hotel that killed more than 50 people. Both hotels were favoured places for foreigners and elite Pakistanis to stay and socialise, making them high-profile targets for militants despite tight security.
The method of attack also matched a May 27 assault on buildings belonging to police and a regional headquarters of Pakistan's top intelligence agency in the eastern city of Lahore, for which the Taliban claimed responsibility.
A small group opened fire on security guards to get through a guard post, then detonated an explosive-laden van.
In Washington, two senior US officials said the State Department had been talking to the hotel's owners to either purchase or sign a long-term lease to house a new American consulate in Peshawar.
But they said they were not aware of any sign that US interest in the compound had played a role in it being targeted.
Lou Fintor, spokesman for the US Embassy in Islamabad, said there were no immediate reports of American casualties.
North West Frontier Province information minister Mian Iftikhar Hussain said officials were reporting 11 deaths in the blast. Other police and government officials could confirm only five dead.
An Associated Press reporter saw six wounded foreigners being helped out of the Pearl.
The United Nations identified a staff member as among the dead. He was Aleksandar Vorkapic, 44, an information technology specialist from Belgrade, Serbia, who was part of an emergency team from the office of UN High Commissioner for Refugees helping with the crisis.
Also killed was Unicef staffer Perseveranda So, 52, from the Philippines, who had been working on educational programs for girls, the children's agency said.
"At the time of the bombing, the hotel was housing many humanitarian workers there to provide life-saving assistance to Pakistan's most vulnerable people. This is an attack on the very humanitarian principles to which Persy was dedicated," Unicef executive director Ann Veneman said.
Peshawar district co-ordination officer Sahibzada Anis said the blast wounded three others working for the UN agency - a Briton, a Somali and a German.
Amjad Jamal, spokesman for the World Food Programme in Pakistan, said more than 25 UN workers were staying at the hotel. He said all seven WFP workers were safe.
UN secretary general Ban Ki-moon condemned the "heinous terrorist attack" in "the strongest possible terms", UN deputy spokeswoman Marie Okabe said.
"Once again, a dedicated staff member of the United Nations is among the victims of a heinous terrorist attack which no cause can justify," Ms Okabe said.
Farahnaz Ispahani, spokeswoman for President Asif Ali Zardari and the ruling party, condemned the attackers.
"We will not be cowed by these people," she said. "We will root them out, we will fight them and we will win. This is Pakistan's unity and integrity that is at stake."