Pakistan's Dawn newspaper reported Bryan Hunt, then consul in Lahore, sent the message to the State Department in November 2008, citing local officials and his visits to south Punjab.
Hunt wrote, "Financial support estimated at nearly 100 million USD annually was making its way to Deobandi and Ahl-i-Hadith clerics in south Punjab from organizations in Saudi Arabia and the United Arab Emirates, ostensibly with the direct support of those governments."
He said local informants had described a "sophisticated jihadi recruitment network" to him.
Muslim "charities" funding a network of radical mosques and madrassas preyed on "families with multiple children" and "severe financial difficulties," recruiting their sons into schools and paying bounties for them, Hunt wrote.
Those youths found most inclined to "martyrdom" would be "chosen for jihad" and sent to "more sophisticated indoctrination camps," which he identified, and eventually off to the North-West Frontier province to launch attacks.
Local officials were doing little to stop the extremists, Hunt wrote.