American leaders continue to fantasize about a world where radical Islamists are “rational actors”—people who, deep down, think just like us. Odds are, last week’s murder of Benazir Bhutto won’t wake them up.

Pakistan is a nuclear-armed incubator of Islamism. Of its four provinces, the two bordering Afghanistan—Baluchistan and the North West Frontier Province—are out-and-out ruled independently by Islamists. Passionate anti-Americanism is virtually the state religion, faithfully practiced by both politician and peasant. The intelligence services employ fundamentalist militants in proxy wars against foreign governments, including that of U.S.-backed Hamid Karzai in Afghanistan. Even the vaunted military—the only guarantor of stability in a dangerously unstable country—includes a long-standing and growing contingent of Taliban sympathizers and Islamists.

The nation has plenty of problems—but a lack of democratic representation hardly ranks high on the list: Among Pakistanis, Osama bin Laden and al Qaeda win popularity polls over President Pervez Musharraf.

Pakistan’s greatest need—for the safety of the world—is leadership strong enough to keep a lid on the nuclear cauldron.

Inexplicably—and frighteningly—that’s not the way many U.S. leaders see it. Washington’s elite have pushed for an end to Musharraf’s military rule and a strengthening of Pakistani democracy. It’s difficult to understand just how they expect this to achieve something other than the handing of more power and possibly nuclear bombs to Islamists.

Benazir Bhutto was a glamorous symbol of this wishful thinking. Beautiful, elegant, Harvard- and Oxford-educated, long loved in the West, she always appeared a welcome contrast to the gruff, bearded, turban-headed leaders that populate the neighborhood. She looked like “one of us.”

In reality, though, her status as an icon of freedom and democracy was an illusion. “[H]er two periods in office as prime minister (1988-90 and 1993-96) were marked by economic collapse, suppression of the press, human rights abuses and appalling corruption,” wrote the National Review (Sept. 20, 2007). Her first administration was accused of “having one of the world’s worst records of custodial deaths, killings and torture,” said the Observer (Dec. 30, 2007). During her second term, Transparency International called Pakistan the second-most corrupt country in the world. Four countries have launched criminal investigations into the various bank accounts maintained by Bhutto and her husband (nicknamed “Mr. 10 Percent” after how much he routinely skimmed off government contracts—amounting to somewhere around $1.5 billion). Strong evidence points to her having ordered the highly suspicious murder of her brother in 1996 after he challenged her leadership of the Pakistan People’s Party, of which she had declared herself “president for life.”

Oh, and one more thing: Under her leadership, Islamism flourished. Underfunded state schools opened the door for the rise of radical religious schools. Islamists milked their favorite recruiting tool for all they could: offering a pure, feisty alternative to the corrupt, ultra-rich, rarified leaders that dominate the region. Meanwhile, Bhutto’s government sent troops to help install the Taliban in Afghanistan and became one of only three nations in the world to recognize that bloody terrorist regime.

On top of all that, it was during Bhutto’s time in office that national hero Abdul Qadeer Khan, the father of Pakistan’s nuclear bomb, began selling nuclear expertise and technology worldwide.

This is the woman the State Department pressured to return home from exile to reclaim power. This is who the U.S. dropped into the cauldron of Pakistan in hopes that she would stabilize the situation.

This is what American policy has descended to regarding one of the world’s most explosive states—and most critical fronts in the global “war on terror.”

It is absolutely remarkable to consider the state of the Middle East and South Asia—the birthplace and breeding ground of violent Islamism—after more than six years of the world’s mightiest military waging a determined, multi-front war against “terrorism.” Israel is in far graver danger than it was six years ago. The Taliban has virtually returned to full strength in Afghanistan. The Palestinian territories are far more radicalized; the Gaza Strip is a Hamas terrorist stronghold. The Muslim Brotherhood in Egypt is much stronger. The notion of Lebanon existing independent of Syrian and Iranian meddling is dead; Hezbollah has all but taken over. A dictator in Iraq is gone, yes—but the power vacuum there has enabled the world’s top terrorist-sponsoring state to rise to unmatched regional prominence. The Islamic Republic of Iran is enriching uranium that could quickly transform this extremist state into a nuclear threat. And these are the areas the U.S. has undertaken significant effort to secure.

Now, instability in Pakistan is enabling the most radical elements to gain ground, adding to the substantial real estate they already control. Since Bhutto’s assassination, angry rioters have killed at least 58 people and burned hundreds of banks, shops, gasoline pumps, train cars and vehicles; they’ve destroyed telecommunications lines, ransacked factories and police stations, torched election offices and destroyed polling materials at voting stations across the country. Musharraf has delayed elections until February, and many fear that the more time that passes, the more the anger and impatience with his rule will grow.

Some observers warn that neighboring Iran is sure to take advantage of the volatility, fomenting chaos in order to, at the very least, strengthen its own hold in Afghanistan—and possibly gain control of any loose nuclear technology it might get its hands on.

Bottom line: The wilder the chaos, the greater the freedom for violent radicals. As Bhutto’s own niece wrote in the Los Angeles Times back in November, even before the present unrest, “The Islamists are waiting at the gate.”

Not exactly what the U.S. had in mind when it encouraged Bhutto’s trip home. But that’s what a failed—if not backfired—strategy looks like. America’s banking on Benazir Bhutto exposes its shocking inability to effect anything close to a desired outcome in Pakistan.

But it exposes far more. It exposes America’s marriage to an idea that continues to underpin the “war on terror” long after it has been proven to be disastrously erroneous.

That idea is the “rational actor” fallacy—the same idea that informed the recent National Intelligence Estimate regarding Iran’s nuclear program. It overestimates the power of Western reasoning, and underestimates the potency of Islamist fanaticism. It believes democracy is a magic wand that transforms tribal, violent cultures into peaceful, freedom-loving civilizations. It thinks that once people experience the power of the ballot, they will naturally want their leaders to patch up local potholes rather than pursue ambitions to Islamicize the world.

The idea that everyone is a “rational actor” sees only good deep down in the human heart—with good meaning whatever is in our own heart: things like the commitment to solving conflicts non-violently, or the desire to have a nice house and fill it with nice stuff.

It does not comprehend—it will not acknowledge—the unshakable, convicted-to-the-core mindset of the individual willing to go all the way—even to the point of detonating himself—for the cause. And thus, lacking comprehension, it is certain, just certain, the extremist can be coddled and coaxed out of his extremism. Perhaps by a beautiful, elegant Harvard graduate.

“When the confident expectations of our leaders and opinion makers turn out to be so dreadfully off the mark, this is a signal that either they have drifted away from reality, or reality has drifted away from them,” Lee Harris wrote in The Suicide of Reason. “It is also a warning sign that those who are shaping our destiny may be the victims of their own wishful thinking and ideological enthusiasms, in which case we have just cause for alarm.”

America allowed itself to be bewitched by a corrupt, power-addicted robber baron—so much so that it pinned its Pakistan policy on her—simply because she likes to shop and go to the theater, has a Harvard degree and knows how to talk democracy. That is a profound drift from reality. That is some fantastical wishful thinking.

That her broken body now lies entombed in the blood-soaked soil of her troubled homeland should be a loud wake-up call for America’s leaders. But the odds are against it.