LAHORE, Pakistan -- A CIA contractor who shot and killed two Pakistani men was freed from prison on Wednesday after the United States paid $2.34 million in "blood money" to the victims' families, Pakistani officials said, defusing a dispute that had strained ties between Washington and Islamabad.

In what appeared to be a carefully choreographed end to the diplomatic crisis, the U.S. Embassy said the Justice Department had opened an investigation into the killings on Jan. 27 by Raymond Allen Davis. It thanked the families for "their generosity" in pardoning Davis but did not mention any money changing hands.