Davis is being held by Pakistan after killing two men he said were trying to rob him. The United States says the CIA contractor has diplomatic immunity, but the killings have inflamed anti-American sentiment in Pakistan.
A Pakistani official, who spoke on condition of anonymity, said "the families of the men killed would more than likely accept financial restitution for the deaths. It is really the only way that this situation can be resolved."
While payments to the family might seem a coarse solution by Western standards, in Pakistan such a gesture would have important religious significance.
Complicating matters, however, are recent statements made by former Foreign Minister Shah Mehmood Qureshi who, along with some Pakistani officials and religious leaders, claims Davis does not deserve diplomatic immunity in the killings.
Qureshi told reporters that, based on his study of the Vienna Conventions, "the blanket immunity as being demanded by the U.S. Embassy was not valid."
Qureshi's meddling is complicating matters and driving a deeper wedge between the U.S. and Pakistan, said one U.S. official who is familiar with the ongoing crisis.
"Davis is being used in Pakistan's internal political matters and Qureshi is using Davis to gain public support," the U.S. official said. "Davis has become part of a complicated political game."
Since Davis' arrest the White House has said Pakistan must release him, as he is an American diplomat and immune from prosecution. However, Pakistan's Foreign Ministry said it has not certified the contractor as a diplomat and that he was never given diplomatic status before the killings.
On Monday, Chief Justice Ijaz Chaudhry of the provincial high court of Punjab province referred Davis' case back to a lower Pakistani court, where he will face murder charges, according to reports from Pakistan.
Jeffrey F. Addicott, a former senior legal adviser to U.S. Special Operations Forces, said, "The Vienna Convention on Diplomatic Relations is the key document in this case.
"If Davis committed a criminal act we can deal with that here, when he is released and back in the U.S.," said Addicott, who is now director for the Center for Terrorism Law at St. Mary's University School of Law in San Antonio, Texas. "Pakistan needs to comply with the rule of law. They have an absolute obligation to turn him over immediately."
Addicott said the U.S. can take several measures against Pakistan if the government refuses to release Davis.
"We can expel all Pakistani diplomats from this country or we can withdraw our ambassador in diplomatic protest," he said. "Either way, the U.S. needs to act or be seen as weak. President Obama can also make Davis' diplomatic records public."
The U.S. also has a pretty strong trump card when dealing with Pakistan -- the billions of dollars in foreign aid funneled into the country, an amount that has topped $18 billion since Sept. 11, 2001.
But attempts by Qureshi and others in Pakistan to make political capital from the case are worrisome. "Qureshi had attempted in the past to gain the support of the U.S. government with the hope of becoming prime minister, and now he has turned against the government and the United States, hoping he will win over the people for future political gain," said one Pakistani official.
Raza Bokhari, director of the World Affairs Council of Philadelphia, a nonprofit group that works to build stronger ties between Pakistan and the U.S., said the Pakistani government's failure to handle the matter of Davis at the administrative level has placed the relationship of the two nations at risk.
"International law must prevail," said Bokhari, who is a U.S. citizen from Pakistan. "This has nothing to do with the Pakistani courts, and the Pakistan government should not hide behind the courts that many times have invoked unwarranted decisions. Raymond Davis should be released and honestly I don't know why Qureshi disagrees with the White House. It is clear that Davis has immunity -- the president's word is all I need."
Bokhari said he "rejects the notion that the present Pakistani government is too weak to handle the matter. I believe they are only acting weak to play hide-and-seek with the United States."
Sara A. Carter is The Washington Examiner's national security correspondent. She can be reached at email@example.com.