While there was no claim of responsibility, suspicion fell on Taliban- and al-Qaida-linked militants under fire from Pakistani military operations in the tribal areas as well as a surge in unilateral U.S. missile attacks on the region.
The border region is a possible hiding place for Osama bin Laden and al-Qaida No. 2 Ayman al-Zawahri. Militants have found a safe haven there, using it as a staging ground for attacks on U.S. and NATO troops in Afghanistan as well as within Pakistan.
Vance worked for CHF International, a U.S.-based aid group that was implementing American government-funded schemes to pump $750 million over five years into developing basic infrastructure such as wells and better clinics and roads in the impoverished tribal areas - which count among the least-developed regions on earth.
CHF International is also involved in Iraq and Afghanistan.
Also in Peshawar early Thursday, gunmen kidnapped an Iranian diplomat after killing his guard, police official Mohammed Manzoor said. He said authorities don't know who the gunmen were. Officials have cordoned off the city's main roads and are trying to trace the kidnapped Iranian.
Iran and Pakistan are Muslim nations and neighbors who have generally had cordial relations though unlike Pakistan in the 1990s, Iran did not support the Taliban regime in Afghanistan. But although Iran is an adversary of the United States, it is majority Shiite Muslim. The Taliban and al-Qaida, adhere to Sunni Islam and generally view Shiite Muslims as heretics.
Until recently Peshawar, the dusty, sprawling regional capital, was considered relatively safe for foreigners. But residents say criminality as well as militancy appears to be on the rise. It was possible the Iranian was kidnapped for a ransom.
The incidents marked the latest in a string of attacks targeting foreigners in Pakistan.
"It seems to be a sort of reprisal against the policies of the Pakistani government, which is considered to be supportive of the U.S. grand plan, as they (militants) see it," said Khalid Aziz, a former top provincial administrator now advising the government on development work in the northwest.
Police said Vance was attacked as he was being driven from his home to his office in University Town, an upscale area of Peshawar where a top U.S. diplomat was attacked a few months ago.
The assailants blocked the vehicle in a narrow lane with their own car, then opened fire at close range with automatic weapons, killing both Vance and his Pakistani driver, said a Western aid worker in Peshawar. He spoke on condition of anonymity because he was not authorized to talk to the media.
The aid worker said Vance was living in Peshawar with his wife and five children. He was not traveling in an armored car like U.S. diplomats in the city because he was a contractor to the government's development agency, not an employee, he said.
A Pakistani government official in Peshawar said Vance was in charge of projects in north and south Waziristan, two of the most dangerous districts in the border area. Because of security, he never visited the regions and was restricted to Peshawar, said the official, who spoke on condition of anonymity because he was not authorized to speak to the media.
Bill Holbrook, director of external relations at CHF International, said Vance was director of the job creation program in Peshawar, where he had been working for about six months. He said Vance, originally from California, had lived and worked abroad for many years, including in East Timor and Mongolia.
"He was a consummate professional development worker who did everything he could to help the people of Pakistan. His death is an enormous tragedy for CHF and the development community," said Holbrook.
Vance's killing was a blow to Western and Pakistani officials who hope to counter the spread of Islamic extremism in Pakistan's border badlands by delivering economic assistance.
In early 2007, the U.S. government pledged $750 million over five years for the effort and those projects are only now getting under way - a delay diplomats in Islamabad blame on Pakistani government inefficiency as well as poor security.
Peshawar, the regional capital located just outside the tribal areas, has not been spared the suicide bombings and shootings that are plaguing much of the region. But until recently it was considered relatively safe for foreigners.
If Peshawar is deemed off-limits for foreign development experts, officials will have to scramble to find qualified and experienced Pakistanis able to ensure that the huge sums of American development money are well spent.
In August, Lynne Tracy, the top U.S. diplomat in northwestern Pakistan, survived a gun attack on her armored vehicle in University Town.
"There is some fear in people's minds, especially among the foreigners, about whether it is worthwhile staying here and undertaking these works," Aziz said.
But the head of a Western aid group in Pakistan said it would be worse if Vance had been targeted simply for working on a Western-funded project because it would imply that even local staff involved in such work were at serious risk.
He said his organization would try to continue its long-standing work in the region but requested that he and his group not be identified to avoid drawing the attention of militants.
In other violence Wednesday, a suicide car bomber killed three soldiers outside a school in the northwestern village of Subhan Khwar, 22 miles north of Peshawar. No students were inside at the time.
