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Chaudhry, sacked in 2007 during emergency by then President Pervez Musharraf, will assume office on March 21 when the current Pakistan Supreme Court Chief Justice Abdul Hamid Dogar retires.
A notification reinstating Chaudhry and nine other sacked judges was issued by the government later in the day.
The dramatic announcement by Prime Minister Yousuf Raza Gilani early morning came after consultations with Zardari, Army Chief Ashfaq Kayani and other leaders that went through the night, putting a lid on the ongoing political turmoil that raised fears of instability and extremist violence in the country.
Zardari, who was holding out notwithstanding intense pressure from the US as also Kayani, yielded hours before Sharif, demanding reinstatement of Chaudhry and other sacked judges, was to lead a long march to Parliament.
Gilani announced that Government will file an appeal in the Supreme Court against the February 25 order barring Sharif and his brother Shahbaz Sharif from contesting elections and holding public offices, a move that may lead to Shahbaz getting back as Punjab Chief Minister. In a televised address to the nation, Gilani said the provincial governments were being directed to lift orders banning demonstrations and processions.
"We are now calling off this long march," Sharif told jubilant supporters in the central city of Gujranwala.
"Today the nation has received very happy news. We have said that we will restore the judges and the independence of judiciary and by the grace of Allah, we have achieved it," he said amid loud cheers.
Using a microphone from inside his jeep, Sharif said "from here, God willing, the fate of this nation will change…from here a revolution will come..very soon, we will play our role in bringing real democracy in this country".
Monday's development also put a question mark on the future of Zardari who has emerged as a weakened President.
Besides pressure from Sharif and the army, he also faced revolt from a section of the ruling Pakistan People's Party (PPP), the latest being the resignation of Information Minister Sherry Rehman over Government's decision to black out certain television channels giving wide coverage to the agitation by PML-N, lawyers and activists. Hundreds of lawyers, civil society activists and political workers held celebrations across Pakistan and scenes of dancing were witnessed outside Chaudhry's residence at the Judges Colony in Islamabad. Chaudhry offered special prayers of thanks on hearing the news.
The security around Chaudhry's residence was tightened soon after the Prime Minister's announcement. Hundreds of people thronged Chaudhry's residence to congratulate him.
Sharif, who defied house arrest on Sunday and was on a long march along with his supporters for a mass sit-in outside Parliament, hailed government's decision as a victory of the people.
"In keeping with the promise made by the President and me, I announce the restoration of all deposed judges, including Chief Justice Iftikhar Muhammad Chaudhry, to their posts," Gilani said.
Among the judges who were reinstated to their positions in the Supreme Court besides Chaudhry are Justices Javed Iqbal, Khalilur Rehman Ramday, Raja Muhammad Fayaz and Ejaz Ahmed, the notification said.
Justices Musheer Alam and Maqbool Baqar were restored to the Sindh High Court, Justice Ejaz Afzal to the Peshawar High Court and Justices Khawaja Sharif and Ejaz Ahmed to the Lahore High Court.
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Sanity seems to be returning to Pak. Sanity will be fully back when the state ends the terrorism sponsored by it.
The world especially USA and the west should understand that there is nothing called as terrorist outfits in Pakistan who are out to destroy the civilised world and they are also hitting pak. It is a wing of pak govt directly under control of ISI and Pak army except minor aberration here and there. These outfits carry out the task assigned by the pak ISI and of course their army. If we disconnect some how the ISI and pak army from the terrorists, this problem will get automatically resolved. Its not understood why USA is failing to understand this simple logic and loosing so many soldiers and resources fighting terrorist tactically, the brain, plan, resources and the cover is provided to them by the ISI. If the western countries can stop ISI participating in the terror planning and execution the problem of terrorist in the world will be almost ZERO. USA please catch the ISI and do not waste time catching bin laden and fool everyone around including all americans.
for ur information it is proved that ur RAW was involved in attacks on Sri Lankan team,officials know that u will not hand over RAW to them so it might be...........
What ever happened is for the good of pakistanis. Now how long this truce continues, and what would be further actions against non state actors, creating terrorism remains to be seen. This was purely Pakistan's internal problem and they have sorted out on expected lines. Now how far is Mr.Sheriff from the prestigeous post is any body's guess. Mr.Zardari has lost the confidence reposed in him by various agencies and hence may have to vacate the chair for Mr.Sheriff
The root cause for all these problems is the Ex President of pakistan Mr Musharaff now he is happily passing on his time in London or Dubai he should be brought to book by the present government he should be punished for all these happenings and for the billions and trillions of money he has looted when he was president..