Relief groups in Pakistan will be forced to stop or cut back supplies of aid to more than one million people fleeing a military offensive in the northern Swat valley unless the worst funding crisis in a decade is resolved.

Nine aid agencies said on Thursday they faced a shortfall in excess of 26 million pounds ($42 million), which was needed to provide food, medicine, tents and clothes to families uprooted by Pakistan's campaign to expel Taliban militants from Swat.

About 2.5 million people have been uprooted by the fighting in Swat and other parts of the northwest, one of the biggest internal displacements in the world.

Oxfam, which is 4 million pounds short of cash, said it would have to close an operation to assist 360,000 people if more money did not arrive by July.

"This is the worst funding crisis we've faced in over a decade for a major humanitarian emergency," Jane Cocking, Oxfam's Humanitarian Director, said in a joint statement.

The United Nations has appealed for $543 million, but has received only about a quarter or $138 million of that so far.

The joint statement said besides little money going into the U.N. appeal, even less was being dispersed to aid groups on the ground from the appeal. The problem has prompted Britain's Department for International Development to say it would give a direct cash injection to the relief agencies.

With the onset of monsoon rains in July, there are fears the risk of malaria, water contamination and diarrhoea will escalate for people sheltering in camps and with host families.

"The only reason we haven't faced a massive humanitarian meltdown is the generosity of families and communities of modest means who've looked after the vast majority of those who've fled the fighting," said Carolyn Miller, Chief Executive of Merlin.

"The world's richest nations need to dig much deeper into their pockets to help," she said in the statement.

Pakistan's military launched the offensive against the Taliban last month after militants took advantage of a peace pact to push into new areas in the region.

With expectations the army will now turn its attention to other Taliban strongholds, like South Waziristan bordering Afghanistan, once Swat has been dealt with, there are concerns the emergency will intensify.

The United Nations' humanitarian chief John Holmes said on Tuesday that 500,000 more people could be displaced if Pakistan's army mounted a big operation in Waziristan.

CONFLICTS VERSUS NATURAL DISASTERS

Given the scale of the problem, why isn't there more money for aid operations in Pakistan?

"Quite why is hard to know - there is a very heavy geo-political focus on this," John Holmes, the top U.N. official for humanitarian affairs told AlertNet.

"It may be that people are not sure how long this crisis is going to last, are thinking that maybe people will return home very quickly. That is hard to be sure about, but our assumption is that this is going to last for several months before everybody can go home at the very least."

The joint statement by ActionAid, CAFOD/Caritas, CARE, Concern Worldwide, Islamic Relief, Merlin, Oxfam, Save the Children and World Vision noted that since May rich countries have contributed $50 million to the U.N. appeal -- a mere nine percent of the total required.

"It's always harder to raise money for conflicts than for natural disasters," said ActionAid spokesman Tony Durham. "Sometimes people feel what's the point of pouring money into reconstruction when it could all be destroyed again?"

Others in the aid world blame a combination of the global recession and donor countries' concerns over security as an obstacle to delivering aid, as well as the public's possible misperception of the conflict and a lack of media coverage for a shortage of funds.

"The public doesn't always differentiate between the Taliban and the people - innocent victims - caught up in this, which might make them less sympathetic," said one Western aid worker, speaking to AlertNet from the field.

He also said the generosity of families who have given shelter to displaced relatives or strangers was helping to mask the extent of the crisis.

In Pakistan and other parts of Asia, it is considered culturally shameful for hosts to ask their guests to move on, but by helping them host families are impoverishing themselves. In one case he cited, 90 people were living in two rooms.

"The public at home can't see this crisis, they can't connect to it," the aid worker said.

(Additional reporting by Megan Rowling)

More AlertNet Insight on the Pakistan displacement crisis:

- Basic services and security needed before displaced can return

- MEDIAWATCH: Aid agencies and media under fire in Pakistan

- Crisis Briefing: full coverage and background on the Pakistan conflict

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