U.S. withholds some military, economic aid for Egypt


* Future deliveries hinge on progress on democracy, rights

* Analyst doubts steps will influence Egyptian government

* Hagel said to have friendly conversation with Egypt's Sisi

By Patricia Zengerle and Arshad Mohammed

WASHINGTON, Oct 9 (Reuters) - The United States said onWednesday it would withhold deliveries of tanks, fighteraircraft, helicopters and missiles as well as $260 million incash aid from Egypt's military-backed government pendingprogress on democracy and human rights.

The decision, described by U.S. officials, demonstrates U.S.unhappiness with Egypt's path since its army on July 3 oustedMohamed Mursi, who emerged from the Muslim Brotherhood to becomeEgypt's first democratically elected leader last year.

But the State Department said it would not cut off all aidand would continue military support for counterterrorism,counter-proliferation and security in the Sinai Peninsula, whichborders U.S. ally Israel.

It also said it would continue to provide funding thatbenefits the Egyptian people in such areas as education, healthand the development of the private sector.

The split decision illustrates the U.S. dilemma in Egypt: adesire to promote democracy and human rights along with a needto cooperate with a nation of strategic importance because ofits control of the Suez Canal, its 1979 peace treaty with Israeland its status as the most populous nation in the Arab world.

"We will ... continue to hold the delivery of certainlarge-scale military systems and cash assistance to thegovernment pending credible progress toward an inclusive,democratically elected civilian government through free and fairelections," State Department spokeswoman Jen Psaki said in astatement.

The military-backed authorities have cracked down hard onthe Brotherhood since ousting Mursi. On Aug. 14, security forcessmashed two pro-Mursi sit-ins in Cairo, with hundreds of deaths,and then declared a state of emergency and imposed a curfew.Many of the Brotherhood's leaders have been arrested since.

In the latest violence, protesters clashed with securityforces on Sunday, with state media reporting 57 people dead.


Jon Alterman, director of the Middle East program at theCenter for Strategic and International Studies think tank inWashington, said it was doubtful Washington would gain anyleverage over Cairo by withholding the aid.

"It may make some Americans feel better about the U.S. rolein the world, but it's hard to imagine how it changes how theEgyptian government behaves," he said.

Some lawmakers criticized the administration's decision.

"The administration is trying to have it both ways, bysuspending some aid but continuing other aid. ... The message ismuddled," said Senator Patrick Leahy, a Vermont Democrat whochairs the Senate Appropriations Committee panel that funds suchaid.

"Pulling away now may undermine the ability of the UnitedStates to work with a critical partner," said Representative KayGranger, the Texas Republican who chairs the HouseAppropriations Committee's panel on foreign assistance.

The U.S. position also exposed differences with its key Gulfally Saudi Arabia, which welcomed Mursi's ouster and haspromised extensive financial support to Egypt's new government.

As if to underscore the divide, the Saudi Embassy inWashington released a statement noting that Saudi King Abdullahhad met Egyptian interim President Adly Mansour in Jeddah.

"We will support Egypt against terrorism, sedition, andthose who try to undermine its security," King Abdullah saidduring the meeting, according to the statement.

On Sept. 24, President Barack Obama said Washington wouldkeep working with the interim authorities in Cairo, but faultedthem for anti-democratic moves such as the emergency law andrestrictions on opposition parties, the media and civil society.

Speaking to reporters in a conference call, U.S. officialssaid the United States would withhold deliveries of M1A1 Abramstank kits made by General Dynamics Corp, F-16 aircraftproduced by Lockheed Martin Corp, and Apache helicoptersand Harpoon missiles built by Boeing Co.

The materiel withheld was worth hundreds of millions ofdollars, the officials said, but stressed that its suspensionwas not meant to be permanent and would be reviewed periodicallyalong with Egypt's progress on human rights and democracy.

U.S. Defense Secretary Chuck Hagel called Egyptian armychief General Abdel Fattah al-Sisi to tell him about the U.S.decisions, speaking for about 40 minutes in what one U.S.official described as a friendly conversation.

Hagel stressed the relationship's importance but underscored the U.S. view that Egypt must move toward democracy.

Officials at Lockheed Martin, Boeing and General DynamicsCorp declined comment, referring queries to the U.S. governmentor military offices handling the weapons sales.

Egypt for decades has been among the largest recipients ofU.S. military and economic aid because of its 1979 peace treatywith U.S. ally Israel, which agreed as a result of the pact towithdraw from the Sinai Peninsula it seized from Egypt in 1967.

The United States has long provided Egypt with about $1.55billion in annual aid, including $1.3 billion for the military.

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