Pakistani Prime Minister Syed Yousuf Raza Gilani announced the appointment of Islam as director general of ISI last week, ending speculation over the past month about who would lead the agency that monitors international threats to Pakistan.
ISI operates alongside the internal intelligence agency, the Intelligence Bureau, set up after independence from the United Kingdom in 1947, although it had operated as part of the British Raj intelligence network before partition of the subcontinent.
Pakistan's third major intelligence agency is Military Intelligence, under direct control of the military.
Some analysts said the government might extend for another year the tenure of Lt. Gen. Ahmed Shuja Pasha, who now will retire this month, a report by the national television station Geo News said.
Pasha, 59, was appointed director general in 2008 shortly before the deadly terrorist attacks on civilians in Mumbai. India blamed militant groups originating from Pakistan for the attacks which killed at least 174 people.
Pasha made Time magazine's 2011 list of 100 most influential people in the world.
"Pasha has grown progressively more suspicious of U.S. motives and staying power," Time reported.
"The arrest of a U.S. government contractor in Lahore has led to acrimony. And larger changes in Pakistan -- the growth of fundamentalism, nationalism and anti-Americanism -- have squeezed the space in which any ISI chief can cooperate with the U.S."
Balancing between being a Pakistani patriot and a U.S. intelligence partner will be difficult for Pasha, Time said.
As Pasha's successor, Islam, 56, may have an equaling difficult task until his retirement, scheduled for 2014.
Islam, the 18th director general of the ISI since 1959 when the agency was created, was deputy director of the agency from 2008-10.
He moves back to the ISI from being the top military commander in Karachi, Pakistan's major port city.
Islam also has had strong contacts with the United States, which may be useful in the near future as the countries try to repair recent diplomatic damages.
"During his career, Zaheer traveled to the United States to participate in U.S. military-sponsored training and international fellowship programs," a U.S. official who didn't want to be named told The Washington Post.
U.S.-Pakistani relations nose-dived immediately after the U.S. Navy SEALs successfully -- but unexpectedly -- raided al-Qaida leader Osama bin Laden's house in the garrison town of Abbottabad in May.
No advance notice was given to Pakistani authorities about the raid, which took place a short distance from one the country's top military academies.
Last month bin Laden's former three-story house, where he allegedly secretly lived for around five years with his three wives and several children, was leveled by local authorities.
But the political scars remain and were added to in November when a U.S. airstrike mistakenly targeted a Pakistani military outpost on the country's northeastern border with Afghanistan. At least 24 Pakistani soldiers died in the attack.
Pakistan immediately banned NATO supply trucks from leaving Pakistan to cross into Afghanistan. The result was hundreds of supply vehicles stranded in long queues at various roadside stations, which military planners said made the convoys sitting ducks for insurgent attacks.
Islam's appointment also comes as Pakistan and Pakistani elements of the Taliban and its supporters are edging toward some form of talks to end attacks.