Mubarak is caught between further repression and reform

President Hosni Mubarak of Egypt lost no time branding last night's attacks a "terrorist act" and pledging to track down those responsible "so that they pay the penalty by force of law".

But in terms of repressive security measures, it is difficult to see what more the embattled President can do to avert future terror attacks. Tourists in Egypt are already escorted by armed guards and barricaded behind concrete blocks in their reinforced palaces.

After two deadly terror attacks on the Sinai peninsula in the past two years, the Egyptian government has been taking no chances.

Mr Mubarak, who had dreamt of a controlled democratic process which he hoped would culminate with his own son succeeding him in the manner of the Egyptian pharoahs, is between a rock and a hard place now. The President, whose predecessor Anwar Sadat was assassinated by religious extremists, is not only threatened by terrorists, but by his own people. If he further cracks down in Egypt, where emergency laws remain in place, he may find that the cowed Egyptian people could swell the ranks of the small but courageous protest movement formed to cry "enough" to his authoritarian regime.

By lifting the lid on the Pandora's box of democracy and allowing multi-party elections last year, pushed by the US, he gave Egyptians a taste of freedom for the first time in a quarter of a century. If he opens it further, he could bring his own regime crashing down.

In a free election in Egypt, it is widely assumed that the Muslim Brotherhood - Islamic fundamentalists - would be the dominant party in parliament. Even running under the conditions imposed by the authorities, in which Muslim Brotherhood candidates had to run as independents, the movement chalked up its biggest success in the elections at the end of last year, winning one fifth of the seats in parliament.

President Mubarak could be approaching a "Hamas moment" if he dares call a free election, in the same way as Yasser Arafat's monolithic Fatah movement ended up surrendering power to the fundamentalist militants in the last Palestinian poll.

Until now, he has been supported by his financial backers in the Bush administration, which continues to bankroll the Egyptian government to the tune of $1.9bn annually.

But Condoleezza Rice, the US Secretary of State, has been making it clear that the neo-conservative agenda requires change. During her visit to Britain last month, she argued powerfully that the status quo in Egypt and other Middle Eastern countries had only provided a "false sense of stability" which was not serving any purpose, and democratic reform had to begin.

"Who today would honestly defend Arab authoritarianism, which has created a sense of despair and hopelessness so desperate that it feeds an ideology of hatred that leads people to strap bombs to their bodies and fly airplanes into buildings?" she said at a Chatham House lecture.

The Egyptian government has warned the Bush administration that the alternative to President Mubarak and his transition plans is chaos.

But after the latest attacks in Dahab, will the Americans still be listening?