Breaking: Musharraf has resigned as President of Pakistan

He kept the suspense going until the very end. He built schools, clinics, irrigation projects, he said. He was innocent, chaos threatened. But finally, he had decided to go.

General Musharraf always liked to play the commando: decisive, daring, the master tactician. His first appearance on the nation's televisions after taking power in 1999 was at 3am, when the jammed single national TV channel cleared to reveal him in commando fatigues.

Never falsely modest, the serial misjudgments that led eventually to his resignation today were those of a military man with limited understanding of politics and of the social trends that, in part, his own policies had initiated.

So what happens now? First an interim president will be appointed, the chairman of the senate. Then a new election will be held for the post with votes cast by the two houses of the National Assembly and the members of Pakistan's four provincial assemblies too.

Candidates and campaign are likely to be the subject of frantic negotiations, horse trading, political infighting and will almost certainly see a new arrangement of power between the two major coalition partners: Nawaz Sharif's Pakistan Muslim League faction and Asil Asif Zardari's Pakistan People's Party.

A new series of constitutional amendments to restrict the power of the president, based on the original 1973 constitution which gives much more power to the office of prime minister, is likely. As ever in Pakistan, the various legal and political manoeuvres over the next months will be complicated, opaque and will obsess the English language media and the elite of Islamabad, Karachi and Lahore – particularly the significant number among them who welcomed the coup and who supported Musharraf for a long time.

Interest in the villages and small towns in which two thirds of the population live will be more limited, despite the effects of the new private television chains.

Musharraf's problems are far from over. Though covered for his military coup in 1999 by a constitutional amendment, Musharraf has no such protection for the state of emergency he declared last autumn, bar some contested court judgments, and is thus going to be open to prosecution as long as he remains in Pakistan. There are also a lot of people – mainly Islamic militants – who want to kill him.

For the moment, Musharraf looks likely to be spared the courts. Some will regret that Pakistan has been spared a long and drawn-out battle to hold Musharraf to account. "An impeachment would have taken a long time but would have shown that coup-makers can be held accountable for their actions and set an important precedent," said Professor Osama Siddique, a constitutional expert at Lahore University of Management Sciences.

Yet the key factor in Musharraf's today's decision, one friend bitterly said, was his "hanging out to dry" by the army. Another way of looking at it is that General Ashfaq Kayani, who replaced the president as head of Pakistan's military when Musharraf belatedly became a simple civilian last year, has decided to restore the army's battered reputation domestically and internationally by withdrawing to the role of "guarantor" of Pakistani democracy, rather than being its dominant actor.

Along with the positive role played in the February general elections, where Kayani none too subtly warned Musharraf off any attempt at manipulation, the overall impression now that the president has gone is that this particular cycle of army rule has ended. There are shades here of 1988 when, following the sudden death of General Zia ul-Haq after 11 years of dictatorial rule, the military top brass allowed a relatively smooth transition to civilian government.

Benazir Bhutto won the subsequent elections. The bad news is that Musharraf's passing is unlikely to make much difference to the raging militancy in the west nor revive the flagging economy. Civilian leaders are unlikely to be able to influence any elements of the security establishment that are assisting Taliban militants in Afghanistan nor are they necessarily better placed to deal with the many structural problems that both fuel the militancy and weaken Pakistan's ability to combat it.

At least, however, the charge of being Washington's stooge will be harder to make against Musharraf's successor – or that of being a closet Islamist. Nine years after that first speech to the nation, Musharraf appeared in a bank manager's dark suit, blue shirt and tie. But the ex-president's problem was always that he could never shake off the stain of the khaki. This at least is one thing he still shares with his country.

Pakistan's leading share index has risen more than 4% after President Pervez Musharraf said he would resign.

The move was welcomed by investors, who said it would help to dispel the political uncertainty that has dented markets recently.

The Karachi Stock Exchange benchmark 100-share index ended the day up 4.47%.

The Pakistan rupee started to strengthen on the news, after hitting a record low against the dollar on fears that Mr Musharraf would be impeached.

Pakistan's rupee, which has shed around a quarter of its value this year, started to recover on Monday after falling to 76.65 to the dollar.

Azhar Ahmad Batla of WE Brokerage House said: "The market could grow more and the rupee could get stronger against the dollar if the country sees good governance in future."

But he warned: "It could go down if the political scene is again troubled."