By Marwa Awad and Shaimaa Fayed
CAIRO (Reuters) - Egypt's new military rulers faced their first unwelcome diplomatic exposure on Wednesday as Israel reported that two Iranian warships were approaching the Suez Canal to pass through for the first time since 1979.
The two navy vessels planned to sail through the canal, one of the world's busiest waterways and a vital source of foreign currency for Egypt's economy, en route to Syria, Israel said, calling it a "provocation" by the Islamic Republic.
Such navy ships have the right to pass under international law, analysts said, but noted the scenario was not the kind of diplomatic challenge the new military rulers would relish.
Egypt was the first Arab country to make peace with Israel in its 1979 treaty and is a pivotal ally of the United States in the Middle East region. The United States and Israel are arch-adversaries of Iran, an ally of Syria.
"For warships to pass through the canal, approval from the ministry of defence and the ministry of foreign affairs is needed and this applies to all warships owned by any country," a Canal official told Reuters. No notice had been given so far.
Neil Partrick, an independent UK-based Middle East expert, said he presumed Iran decided on the ships' mission before Egypt was engulfed in the uprising that toppled President Hosni Mubarak last week and that the operation was driven by long-time military and security cooperation between Tehran and Damascus.
"However, the decision not to cancel the journey, once the turmoil in the region had begun, could be a sign that Iran is prepared to risk tensions," said Partrick, adding:
"Egypt is in a sense the guarantor of free passage of goods and people through the Canal. So you could say this might be a provocative move at a time when Egypt is moving into a period of uncertainty. Nevertheless the Iranians would say they have a right to the canal and they have simply chosen to exercise it."
On the domestic front, Egypt's ruling military command was trying to get their country back to normal after the 18-day revolution that rewrote modern Egyptian history.
Some Egyptian workers ignored a call by the military to return to work on Wednesday, and a committee hammered out constitutional changes to pave the way for democracy after 30 years of Mubarak's iron rule.
The Higher Military Council had urged Egyptians to put aside the revolutionary ardour, expressed in protests and strikes about poor pay and working conditions, in the interest of national unity and restarting the damaged economy.
Banks are closed across Egypt due to protests and unrest, having a spillover effect across many sectors of the economy, while over 12,000 textile workers went on strike in the city of Mahalla el-Kubra and industrial action also hit Cairo airport.
Motivated by uprisings in Egypt and in Tunisia, hundreds of people, angry at the arrest of a rights campaigner, clashed with police and government supporters in the Libyan city of Benghazi. There have also been clashes in Iran, Bahrain and Yemen.
"The ripple effect of the Egyptian revolution is shaking Middle Eastern dictators to their foundation," said Fawaz Gerges, a London School of Economics Middle East expert.
FRENZY OF RUMOUR
There was a frenzy of rumour about the health of Mubarak, 82, who is holed up at his residence in the Red Sea resort of Sharm el-Sheikh after flying from his Cairo palace. In one of his final addresses, Mubarak said he wanted to die in Egypt.
One Saudi official in Riyadh said: "He is not dead but is not doing well at all and refuses to leave. Basically, he has given up and wants to die in Sharm." The official added that Saudi Arabia had offered to be his host.
Life was far from normal five days after Mubarak was forced from power by a whirlwind uprising, with troops and tanks on the streets of Cairo, schools and banks closed and Egyptians still finding their new found freedom hard to believe.
A committee, set up to amend the constitution within 10 days as a prelude to parliamentary and presidential elections in six months, also met as the military dismantles the mechanisms used to maintain Mubarak's rule. The Higher Military Council has already dissolved parliament and suspended the constitution.
Members of the newly formed 19-person pro-democracy Council of Trustees of the Revolution appeared at a news conference in downtown Cairo to say its main goal was to unite ranks, protect the revolution and open a dialogue with the military.
WASHINGTON SUSPICIONS
The Islamist Muslim Brotherhood, which did not play a leading role in the revolution but has been Egypt's best organised opposition group for many years, has a member on the committee drawing up the constitutional amendments.
"They have their traditional fear of the military, their traditional fear of clashing with the new power," said Diaa Rashwan, an analyst and an expert on political Islam.
Some secular leaders fear that racing into presidential and parliamentary elections in a nation where Mubarak suppressed most opposition activity for 30 years may hand an edge to the well-organised Muslim Brotherhood, banned under Mubarak.
Washington regards the Brotherhood with suspicion.
"I would assess that they are not in favour of the treaty (with Israel)," Director of National Intelligence James Clapper told the Senate Select Intelligence Committee. But the Brotherhood was "only one voice in the emerging political milieu," Clapper said.
Opposition leaders welcomed the military's commitment to a swift handover to civilian rule, but called for the release of political prisoners and the lifting of emergency laws.
Pro-democracy leaders plan a "Victory March" on Friday to celebrate the revolution, and perhaps remind the military of the power of the street.
With no clear leadership, the youth movement that was pivotal to the revolution due to its use of social networking sites to organise protests is seeking to overcome divisions and expects to announce a new political party on Thursday.
Uncertainty remains over how much influence the military, which receives $1.3 billion (809.0 million pounds) a year in U.S. aid, will try to exert in reshaping a corrupt and oppressive ruling system which it has propped up for six decades.
Admiral Mike Mullen, chairman of the U.S. Joint Chiefs of Staff, said military aid was of "incalculable value," helping Egypt's armed forces to become a capable, professional body.
"Changes to those relationships ... ought to be considered only with an abundance of caution and a thorough appreciation for the long view, rather than in the flush of public passion and the urgency to save a buck," he said.
(Reporting by Marwa Awad, Edmund Blair, Alexander Dziadosz, Shaimaa Fayed, Andrew Hammond, Alistair Lyon, Sherine El Madany, Tom Perry, Yasmine Saleh, Tom Pfeiffer, William Maclean, Patrick Werr, Jonathan Wright, Dina Zayed and Amena Bakr in Saudi Arabia; writing by Peter Millership; editing by Mark Heinrich)
