"Pakistani-based sanctuary for insurgents, such as the Haqqani Taliban Network in North Waziristan, as well as the financial and operational support that insurgents receive from various sources" keeps the security situation volatile along the border with Pakistan, said the report presented to the U.S. Congress.
It said while enemy attacks have declined slightly, eastern Afghanistan accounted for almost a third of all insurgent attacks throughout the country.
"The Taliban-led insurgency remains adaptive and determined, and retains the capability to emplace substantial numbers of (improvised explosive devices) and to conduct isolated high-profile attacks," the report said. "The insurgency also retains a significant regenerative capacity."
With the coalition and Afghan forces eroding their efforts, the Taliban insurgents have increasingly resorted to asymmetric tactics to regain territory and influence. Those tactics include assassinations, kidnappings, intimidation tactics, encouraging insider attacks and strategic messaging campaigns, said the report, which must be submitted to Congress two times a year.
The report said the coalition surge has accomplished its mission in that Taliban and al-Qaida insurgents have lost capability and the number of attacks is down.
While Pakistan remains a problem, the report said there is some progress.
"The insurgency and al-Qaida continue to face U.S. counter-terrorism pressure within the safe havens. U.S. relations with Pakistan have begun to improve following the re-opening of Pakistani ground lines of communication, and there has been nascent improvement with respect to cross-border cooperation between Pakistan and Afghanistan."
U.S. and coalition forces are scheduled to end their operations by the end of 2014 with Afghan National Security Forces to take over security thereafter. The report said the ANSF has dramatically increased its capabilities.
"The areas of the country influenced by the insurgents and the ability of the insurgency to attack the population have been significantly diminished," the report said.
The New York Times said the Pentagon report found widespread corruption continues to weaken the central Afghan government and insider attacks by Afghan security forces on their NATO coalition partners are up, with 37 reported so far in 2012.
The Times said the report also found Afghan security forces are continuing to lead most routine patrols throughout the country, and there has been a decline in violence in populated areas such as Kabul and Kandahar.