This paper presents a new multi-tier holistic approach for recognizing Urdu text written in Nastaliq script. It first identifies special ligatures like dots, tay, hamza and mad from base ligatures. It then associates the special ligatures with neighboring base ligatures. Features are extracted from the ligatures and special ligature-base ligature associations. These features are input to a neural network that recognizes the ligatures in three steps: 1) identifying special ligatures, 2) associating them with base ligatures, and 3) recognizing the base ligatures. The system was tested on 200 ligatures with 100% accuracy for ligatures in its training set and closest match classification for new ligatures.