Egyptian officials involved in recent negotiations with U.S. diplomats said on Saturday they believed that Washington planned to unblock military aid to Egypt, which has been embroiled in a dispute with the United States over democratic freedoms.

About $1.3 billion in military aid to Egypt that Congress approved for the current fiscal year was blocked under a new law requiring U.S. Secretary of State Hillary Clinton to certify that Egypt's military supports a transition to civilian rule.

But the law, passed in December, says Clinton can waive the requirement on grounds of national security.

America's political elite and senior military officials have visited Cairo to try to defuse a crisis with Egypt's military, which has been ruling Egypt since President Hosni Mubarak was overthrown by a popular uprising last year.

If permanent, any cut-off in U.S. military aid to Egypt - the Arab world's most populous country - could rupture the strong alliance between the two countries which began in 1979 when Egypt signed a peace treaty with Israel, analysts say.
   
"U.S. aid to Egypt is expected to continue because the ties between the two countries are strong and important for the region," an Egyptian official involved in the negotiations told Reuters. "Both the military and economic assistance benefit U.S. defence companies and development agencies in America. The benefit is therefore mutual to both countries"

When asked if Egypt expected the aid to be released another official said: "Yes, the parties involved understand the challenges ahead and are willing to support each other politically and strategically."

He added that the talks between U.S. and Egyptian officials had underscored "Egypt's strategic stability and America's interests in the region."
    
CLINTON MAY DECIDE NEXT WEEK
The U.S. State Department said on Friday Clinton could decide on the military aid as early as the middle of next week.

The New York Times quoted congressional officials as saying Obama's administration planned to resume the military aid.
    
In the last few months, Egypt's military rulers have overseen parliamentary elections judged largely free and fair and have scheduled a presidential vote that begins in May.

But Congress members critical of Egypt have said concerns over human rights abuses risked the continuation of U.S. aid. Some of them said there was pressure from the Pentagon and American defense contractors to allow the aid to go forward.
    
The Obama administration may have little choice but to go along with the Egyptian army's demands.

Egypt must buy most of the weapons financed by U.S. military aid from American arms makers such as General Dynamics, which supplies Egypt's army with tanks, putting pressure on U.S. lawmakers from states with arms industries ahead of November elections.

The military establishment is almost certain to retain a key role in Egypt's decision making, including economic policy, no matter who wins in the two-round presidential election in May and June, analysts and diplomats say.

Egyptian and U.S. troops train every second year in joint Bright Star drills and the U.S. aid has guaranteed overflight rights and priority passage of U.S. Navy ships through the strategic Suez Canal.