US F-15 jet fighters and a B-1 bomber dropped bombs on a Pakistani Frontier Corps border check point early today, killing at least 11 soldiers and setting off outrage in Pakistan.
Villagers said US and Pakistani forces opened fire on each other, a dramatic escalation in tensions between the two countries, if true.
An official Pakistani Army spokesman condemned what he called "this completely unprovoked and cowardly act," saying it threatened Pakistani's cooperation in the war against terror.
"Acts of aggression do not serve the common cause of fighting terrorism," the spokesman said in a widely distributed statement.
US military officials says the bomb attack was called in after US ground forces were "ambushed" 1,000 yards inside Afghanistan by Taliban fighters who then fled across the border to Pakistan.
The US and coalition forces did not cross the border in "hot pursuit" but US aircraft did, according to a US military statement.
"We tracked them across the border, called in fixed-wing aircraft and hit the target, consistent with our rules of engagement," said a US military official.
Those rules allow US forces to strike inside Pakistan if the insurgents are fleeing from Afghanistan and they have been observed the entire time running into Pakistan.
Villagers interviewed by APTN told a different story, saying US troops crossed into Pakistan "and started firing on them as well as on us, so the Mohmand tribe and the Pakistan soldiers fought them."
Britain's High Commissioner to Islamabad, Robert Brinkley, told APTN, "We are very sorry for any loss of life."
But Brinkley said the area "is being used by al Qaeda and its allies to plot terrorist attacks in other parts of the world, including my country, in Britain, as well as to do damage here in Pakistan and Afghanistan."
A US official said the incident is under serious investigation, in light of Pakistan's official protest, though the 101st Division is adamant that their version of events is correct.
A defense official says he hasn't seen anything to indicate that Frontier Corps. Fired upon US forces or were in league with the group of Taliban fighters that fired on US forces.
The US attack comes as tensions between the two country are already at a heightened level.
Pakistan has entered into "peace talks" with tribal leaders who the US suspects are giving safe haven to Taliban and al Queida fighters.
Today's attack took place in Mohmand tribal territory, where al Qaeda's number two man, Dr. Ayman al-Zawahiri, is believed to be hiding.
Intelligence sources in Pakistan tell ABC News that Zawahiri is believed to have recently married a Mohmand tribal woman to guarantee he continues to be protected by the tribe.
The US attack led to speculation on some jihadist web site chat rooms that Zawahiri had been killed in the bombing, but US officials say that is not the case.
Luis Martinez contributed to this report