LAHORE, Pakistan - Police lifted the house arrest of opposition leader Benazir Bhutto, officials said Friday, hours before the arrival of a senior U.S. envoy who was expected to urge the country's military leader to end emergency rule.

The move came after Bhutto -- while still confined to a Lahore residence -- urged fellow opposition leaders to join her in forming an alliance to govern until elections.

Despite Bhutto's call, President Gen. Pervez Musharraf has given no sign he will hand over power. He has named his own interim prime minister and was expected to announce Friday a caretaker Cabinet to oversee parliamentary elections promised by Jan. 9.

"The government has withdrawn the detention order," Zahid Abbas, a senior police official, told an Associated Press reporter near the barricaded house where Bhutto has been confined for three days.

"The house is no longer a sub-jail but security will remain for her own protection. She's free to move and anyone will be able to go to the house," Abbas said.

Political unrest deepened Thursday as one of the country's main Islamist parties called its first protests for Friday against the state of emergency, adding the voice of factions opposed to Musharraf's alliance with the U.S. to the recent protests by lawyers, students and secular parties against military rule.

Also Thursday, two children and an adult were killed during a gunbattle between police and protesters in the southern city of Karachi -- the first deaths during demonstrations since Musharraf suspended the constitution Nov. 3. Protests were reported in other cities and more party activists were arrested.

Bhutto outlined her plan for opposition factions to form a national unity interim government that could supplant Musharraf's administration during a telephone interview with The Associated Press, and the idea was quickly supported by her longtime political rival, Nawaz Sharif.

But Sharif said they weren't in a position to form an acting government unless Musharraf was removed from office. Bhutto indicated a need for a voluntary transfer of power, saying she shared Washington's concern about a power vacuum should the general be ousted.

Sharif, who like Bhutto is a former prime minister, said the opposition's priority should be reinstatement of Supreme Court judges removed by Musharraf. Independent-minded judges blocked some of his moves this year, and many people suspect Musharraf feared the court would overturn his re-election as president last month by legislators.

The deteriorating situation greatly worries the Bush administration, which has seen Musharraf as a key ally in the fight against Taliban and al-Qaida-linked extremists who have been gaining strength along Pakistan's border with Afghanistan.

President Bush "wants the state of emergency to be lifted," White House press secretary Dana Perino said. "And it is up to President Musharraf. He has the responsibility to help restore democracy."

Deputy Secretary of State John Negroponte, on his way to Pakistan to underline the U.S. demands, said during a stop in Africa that the democratic process here has been "derailed."

"Our message is that we want to work with the government and people of Pakistan and the political actors in Pakistan to put the political process back on track as soon as possible," Negroponte said.

Reflecting a view in Washington that Musharraf may not be able to hold on to power, U.S. officials have been referring broadly to "the Pakistani leadership" and contacting other senior military leaders. The back-channel contacts include some who may have pull with Musharraf or even pose an alternative to his rule.

Bhutto, who returned from exile last month to launch a political comeback, was placed under house arrest Tuesday to prevent her from leading a major protest. She has the highest profile among the thousands of political activists who have been detained in a government crackdown on dissent that has sparked an outcry at home and abroad.

Bhutto said she was contacting political leaders about her proposal for an alliance that could step in and govern until a new parliament is elected.

"I am talking to the other opposition parties to find out whether they are in a position to come together," she said. "We need to see whether we can come up with an interim government of national consensus to whom power can be handed."

She said a consensus on leadership was necessary to ensure an orderly transition should Musharraf agree to step down.

The general has so far refused, telling the AP on Wednesday that he planned to relinquish his post as army chief by the end of November but would stay on as president. He is promising elections by Jan. 9, but suggests they will take place under the restrictive emergency rule.

He appointed Mohammedmian Soomro, the Senate chairman and a Musharraf loyalist, as interim prime minister Thursday to head a caretaker government to oversee the elections. The move was necessary because Thursday marked the end of the current Parliament's five-year term.

Soomro's appointment could strengthen widespread skepticism about Musharraf's assertions that the elections will be free and fair, and observers were watching to see whether the acting Cabinet ministers to be announced Friday were also Musharraf loyalists.

A union between Bhutto and Sharif -- the man Musharraf ousted in a 1999 coup -- would undoubtedly turn the heat up for the general, who has so far been successful in keeping the country's quarreling opposition factions divided.

In a telephone interview from his home in Saudi Arabia, Sharif said he supported the idea of a unity government to help stabilize Pakistan.

"I will be very happy to extend any cooperation to rid the country of a dictator, but it is important the judiciary is reinstated," he said.

Sharif talked with Bhutto by phone Wednesday but the unity government idea was not discussed. He said he told her the opposition should boycott the elections planned for January and she said she would give her response within a day or two.

"Under these circumstances, I'm for a complete boycott of the elections," Sharif said. "How can you go into elections where your hands are tied up; leaders are all arrested and parties cannot meet; where there is a subservient judiciary and a hand-picked Election Commission?"

Bhutto was visited Thursday by Bryan Hunt, the U.S. consul-general in Lahore, who was allowed to cross the police cordon surrounding the house where she is confined.

"He came to find out whether I could work with Gen. Musharraf, and I told him that it was very difficult to work with someone who, instead of taking us toward democracy, took us back toward military dictatorship," she told the AP.

Bhutto said she shared the U.S. government's misgivings about might happen to this nuclear-armed nation if Musharraf was forced out, saying a strategy for an orderly transition was a must.

Bhutto claimed Musharraf was losing support within the military, particularly below the high command.

"I sense an enormous disquiet. The army feels rudderless, it feels leaderless," she said. "It feels its job is to defend the motherland, and instead it finds itself embroiled in a controversial domestic role."

She provided no evidence, however. Musharraf has scoffed at such talk, telling AP in an interview Wednesday that the army's loyalty was absolute and that his soldiers would never turn against him.

"They followed me not because of the rank but because of the respect they hold for me. I have no doubt on the loyalty of this army. Never will this happen against me," he said.