President Pervez Musharraf [Images] has said he may give up power if the situation in Pakistan becomes 'unacceptable,' even as he dismissed reports of trying to enter into a 'deal' with former premier Benazir Bhutto [Images] ahead of the general election.

Musharraf, who doffed his uniform to become a civilian president on Thursday, also said Pakistan was fighting terrorism 'everywhere' and it should not be held 'responsible' for any failure in the 'war on terror.'

Asked if he was any closer to a deal with Bhutto during an interview to ABC's Good Morning America, Musharraf said: 'I am not dealing -- I am not into any deal with anyone.'

Interestingly, Pakistani media reported on Thursday that Musharraf met Bhutto discussing upcoming elections on January 8. However, the former premier's party denied the report.

Claiming that the present situation in Pakistan allows the holding of free and fair elections, Musharraf said: 'We have to see, after the election, how things develop. And I have all the choices. If the situation develops in a manner which is absolutely unacceptable to me, I have a choice of leaving.'

On the fight against terrorism, Musharraf said, 'We cooperate very well. So if there is a failure, it is not Pakistan's failure. Please do not accuse us.'

He also defended the imposition emergency in the country, saying it was a reaction to the opposition parties' attempts to 'destabilise' his government.