ISLAMABAD, Pakistan — Heavily armed Islamic militants have gathered on the outskirts of Peshawar, the strategic provincial capital in northwest Pakistan, and the Pakistani government has dramatically stepped up security around the city amid fears it could fall.

Taliban groups and other extremist warlords now threaten Peshawar from three sides. Should they take over Peshawar, the rest of the North West Frontier Province could follow, leaving Islamic extremists in control of a region that borders Afghanistan and sits astride one of the main supply routes to U.S. and coalition troops there. ...