The ruling by the Lahore High Court is likely to extend a crisis in ties between the United States and Pakistan over contractor Raymond Davis, who is on trial for double murder, and complicate efforts to secure his release.

“The case is in a trial court ... It will decide on his immunity,” Chief Justice Ejaz Chaudhry told the court in the eastern city. Davis’ murder trial resumes on Wednesday.

The US embassy in Islamabad said it would “continue to work with the authorities to resolve this issue.”

Davis, 36, shot dead two Pakistanis in Lahore on Jan. 27. He said he acted in self-defense and the United States says he has diplomatic immunity and should be repatriated.

Pakistan says the courts must decide.

The High Court had been considering whether he had immunity while a criminal court is due to resume hearing the murder charges on Wednesday. If convicted, Davis could face the death penalty.

The case has shaken relations between the United States and Pakistan, a vital ally in the US-led campaign against Taleban militants in Afghanistan.

Davis’ double murder trial resumes on March 16 at the Kot Lakhpat jail in Lahore, where he is being held under tight security. This will be the third hearing, but it is possible the trial will be adjourned on procedural grounds.

Questions surround the identity of the victims, with some media reports saying the men worked for Pakistan’s Inter-Services Intelligence (ISI) agency, and that they might have been known to Davis.

Other reports suggest they were armed robbers who had already targeted others in Lahore before attempting to rob Davis, tailing him on motorbikes along a congested city road.

The case has also strained ties between the CIA and Pakistan’s main Inter-Services Intelligence (ISI) agency, which said it was unaware Davis was working in Pakistan.

There is mounting speculation the United States might back payment to the victims’ families of compensation, or blood money, as laid out under Pakistani law, even if it is loathe to support a payment in what it sees as a case of self-defense.

Under that scenario, Pakistan could facilitate US contact with the families of the two slain men - and, presumably, the family of a third man who was struck and killed by a US vehicle going to help Davis after the shooting - to offer a deal.

“The best, perhaps the only, option for the government is to pacify the relatives of those killed to come to some compromise,” said Talat Masood, a retired Pakistani general.

“It’s the only option everyone seems to be working on.” Such payments are sanctioned by Islamic law and are common in some parts of rural Pakistan as a way to settle disputes. But the victims’ families would have to agree.

Pakistani newspapers have reported some efforts on a deal although a US embassy spokesman said he had no knowledge of any negotiations. The principle of diplomatic immunity was key to the case, the US spokesman added.