The NATO-led coalition and the Afghan government in Kabul should start involving moderate members of the insurgents, Miliband said in a speech at NATO headquarters in Brussels Monday.
"For higher-level commanders and their networks, we need to work with the Afghan government to separate the hard-line ideologues, who are essentially irreconcilable and violent and who must be pursued relentlessly, from those who can be drawn into domestic political processes," he said, according to The New York Times.
To do so, Miliband called for "grassroots initiatives" to lure moderate Taliban away from violence.
"Essentially this means a clear route for former insurgents to return to their villages and go back to farming the land, or a role for some of them within the legitimate Afghan security forces," Miliband said. "Military pressure has an important role to play -- these people must see the danger of remaining insurgents, but also believe that they will be protected from their former allies if they lay down their arms."
NATO forces have launched several offensives against the Taliban in Helmand province (British, Danish, Estonian and Afghan troops) and in northern Afghanistan (German and Afghan troops). The offensives have been bloody but successful, British officials said.
It was reported last week that Afghan authorities have agreed to a truce with the Taliban in the province of Badghis, in a bid observers say is aimed at stabilizing the area before the Aug. 20 presidential elections.
Comparing engaged diplomacy with the Taliban to the talks that ended the violence in Northern Ireland, International Development Secretary Douglas Alexander told the BBC that "it is necessary to put military pressure on the Taliban while at the same time holding out the prospect that there can be a political process that can follow."
Miliband said the Taliban remain "deeply unpopular with ordinary Afghans," adding that they could terrorize, but because of their military and organizational inferiority "can't take and hold territory on a lasting basis."
But observers say that a more stable national government is needed to keep locals from joining the Taliban. The presidency of Hamid Karzai, who has been backed by the West, has been marred by corruption.
"It is only when the cooperation, passive and active, of ordinary Afghans is removed that the insurgency will be fatally undermined," Miliband said. "The squeeze on the Taliban must come from within as well as without."
With around 9,000 troops in Afghanistan, Britain is the second-largest contributor to the NATO mission behind the United States.