Cairo protesters march on palace

CAIRO (Reuters) - Egypt's powerful military gave guarantees on Friday that promised democratic reforms would be carried out but angry protesters intensified an uprising against President Hosni Mubarak by marching on the presidential palace.

In Washington, a U.S. official said Mubarak's reported departure to the Red Sea resort of Sharm el-Sheikh on Friday was a "positive first step." He said Mubarak was believed to have arrived at the resort but declined to elaborate on the significance of the development.

An important statement from the president will be broadcast shortly, state television said on Friday without elaborating.

The army gesture was an effort to defuse a 18-day-old revolt unprecedented in modern Egypt but, in disregarding protesters' key demand for Mubarak's ouster now, it failed to halt turmoil disrupting the economy and rattling the Middle East.

"This is not our demand," one protester said, after relaying the contents of the army statement to the crowd in Cairo's central Tahrir Square. "We have one demand, that Mubarak step down." He has said he will stay until September elections.

About 2,000 peeled off from Tahrir (Liberation) Square and gathered outside the presidential palace for the first time calling for Mubarak to resign immediately, and the army did not try to remove them.

Other protesters fanned out to the state television tower, another monument to Mubarak's 30-year-old authoritarian rule, demanding that broadcasters tell the truth about the revolt.

At its closest point, the cordon was about 50 metres (yards) from the palace walls. Parked between the walls and the cordon were tanks and soldiers from the elite Republican Guard which is in charge of presidential security.

"Revolution, revolution, until victory! Revolution all over Egypt," hundreds of thousands of protesters chanted in Tahrir.

The sour confrontation has raised fears of uncontrolled violence in the most populous Arab nation, a key U.S. ally in an oil-rich region where the chance of chaos spreading to other long stable but repressive states troubles the West.

The army statement noted that Mubarak had handed powers to govern the country of 80 million people to his deputy the previous day -- perhaps signalling that this should satisfy demonstrators, reformists and opposition figures.

But it was not immediately clear if the army and Vice President Omar Suleiman, Mubarak's 74-year-old intelligence chief and former military man, were acting entirely in concert.

Mubarak and his family had left Cairo for Sharm el-Sheikh where there is a presidential residence, a ruling party official said, adding that this proved that power had been handed to Suleiman.

The Muslim Brotherhood, an Islamist opposition group, urged protesters to keep up mass nationwide street protests, describing Mubarak's concessions as a trick to stay in power.

"Mubarak appeared before us with a stinging speech that proves that he is still in charge," the Brotherhood said in a statement. Mubarak has accused the Brotherhood of hijacking protests but it has also been invited along with other opposition groups to talks with Suleiman.

"He still says he will do this and do that but will delegate authority to his deputy, but it's just more deceptive words to stop the people's demands," it said. "The two statements issued by Mubarak and his deputy are rejected by the people."

EMERGENCY LAWS TO BE LIFTED

Hundreds of thousands of protesters rallied across Egypt, including in the industrial city of Suez, earlier the scene of some of the fiercest violence in the crisis, and the second city of Alexandria, as well as in Tanta and other Nile Delta centres.

In "Communique No. 2" the army said it "confirms the lifting of the state of emergency as soon as the current circumstances end," a pledge that would remove a law imposed after Mubarak became president following Anwar Sadat's assassination in 1981 and that protesters say has long been used to stifle dissent.

The army also promised to guarantee free and fair elections and other concessions made by Mubarak to protesters that would have been unthinkable before January 25, when the revolt began. Around 300 people may have been killed since then.

Protesters were angered on Thursday night, having thronged Tahrir Square for a resignation speech only to hear Mubarak in an address say he planned to hand over powers to a deputy.

Mubarak said the transfer was in line with the constitution which left him in ultimate charge, and able to return, dismaying a protest movement bent on ending his authoritarian tenure.

Troops have promised to protect the right to demonstrate but a lengthening showdown over Mubarak's rule could test that resolve, with many Egyptians keen to end the economic disruption and the army keen to show it can re-instil order.

"The armed forces are there to protect the demonstrators and to protect the country but the powers have been handed over, not to the military, but to the vice president," Finance Minister Samir Radwan said in an interview with Reuters, after concern the military could decide to resolve the crisis with a coup.

"Nobody likes a military rule, that is for sure. Our military have so far shown that they are the safety valve of this country," he said before the army statement.

Already some mid-ranking officers posted near Tahrir Square have put down their guns and gone over to the demonstrators and a familiar protest chant is: "The army and people are as one."

Hundreds of thousands of anti-Mubarak protesters chanted noisily in Tahrir Square on Friday while troops in tanks and armoured vehicles stood by in what organisers said was their movement's biggest display of indignation so far.

PALACE PROTEST PERMITTED

"Down, down Hosni Mubarak!" chanted protesters who were permitted to approach the presidential palace in the suburb of Heliopolis for the first time. A sign delivering the same message was affixed to razor wire blocking one of the entrances.

Ahmed Farouk, 27, a member of one of the youth movements behind the protests, said the demonstrators would "take over the palace. We'll have masses of Egyptians after prayer to take it over. The army has been neutral and did not harm any of us."

"We will march to the palace and oust Mubarak, and we know the world is on our side," said Nurhaan Ismael, a protester, 34.

At least 1,000 protesters massed around another symbol of the government, the state television building, which the army guarded with armoured personnel carriers and barbed wire.

"It is the last straw for any revolution, if they take over the state TV building, that's it, the regime is down," said teacher Mohamed Sabr, 31, asked why he was there.

It was the first time protesters had been in any numbers at the building located on the Nile, just a few blocks down from the ruling NDP party headquarters which was burnt down by protesters and remains a charred symbol of revolution.

Graduate Abdallah Gamal, 24, added: "This is revolution, not an uprising and not a sit-in, this is a real revolution."

The military briefly seemed close to a decisive move when its top brass met on Thursday in Mubarak's absence and pledged to protect the nation in Communique No. 1. Some believed this was the first stage of an army coup. But no action followed.

The army, from politically plugged-in generals to poor conscripts and junior officers, is key to what happens next.

Washington's approach to the crisis has been based on Egypt's strategic importance: a rare Arab state no longer hostile to Israel, guardian of the Suez Canal linking Europe and Asia and a major force against militant Islam in the region.

(Reporting by Samia Nakhoul, Edmund Blair, Marwa Awad, Yasmine Saleh, Dina Zayed, Shaimaa Fayed, Alexander Dziadosz, Sherine El Madany, Patrick Werr, Alistair Lyon, Tom Perry, Andrew Hammond, Jonathan Wright, Alison Williams in Cairo; Arshad Mohammed and Ross Colvin in Washington; writing by Peter Millership; editing by Mark Heinrich)