Observing that the 'war on terror' has now shifted to Pakistan, an American think tank has said the United States now needs to make harder choices in dealing with Islamabad. It has become all the more necessary as the US-led international forces are not winning the war in Afghanistan; it is in fact just the opposite, it said. At this point of time, they are losing, the Center for Strategic and International Studies said in its latest report, which is yet to be made public. A copy of the report was released Monday for limited circulation. The Taliban and the Al-Qaeda are winning the war in this region of the world not only because of the wrong US policies and poor Afghan governance, but also primarily because Pakistan still does not see this struggle as its war. "Make hard choices in dealing with Pakistan, and accept the fact that the most critical struggle is not in Afghanistan, but against Al-Qaeda and other sources of international terrorism in Pakistan and threats to Pakistan's internal stability," the report has recommended. The 41-page report has been authored by Anthony H. Cordesman, Arleigh A Burke Chair in Strategy at CSIS. The report comes at a time, when the Obama Administration is in the final stages of completing its new Afghan policy. The report said the US may be fighting in Afghanistan but the key struggle is in another country; Pakistan. "A Taliban victory in Afghanistan would almost certainly create a major new sanctuary for Al-Qaida as well as empower every violent and extremist jihadist movement in the world," warned the report, saying that the US-led international community can't afford to lose the war against terrorism in this part of the world. "It is far from clear, however, that any combination of US, Afghan, and NATO ISAF efforts can win a long war of political attrition in Afghanistan if the Taliban, Al-Qaida, Haqqani network, Hekmatyar movement, and other threats have a de facto sanctuary in Pakistan," it said. Further it is also clear that a nuclear-armed Pakistan is far more of a strategic prize than Afghanistan and that the conversion of Pakistan into a failed or Jihadist state would pose a more serious strategic threat to the US than the loss of Afghanistan, the report observed. Mr. Burke noted that the US may never be able to deploy more than limited cadres of advisors, Special Forces, and systems like UCAVs to Pakistan. "It may have to depend on the carrot of aid and the stick of political pressure," he said. "The fact remains, however, that what started as an Afghan War has spread in to the Federally Administered Tribal Areas (FATA), and Baluchi areas of Pakistan and that this is now the most critical center of gravity in a complex, multidimensional war," the report said.