CAIRO (Reuters) - Opposition groups including the banned Muslim Brotherhood held talks with the government on Sunday to resolve Egypt's political crisis but said their core demand for the removal of President Hosni Mubarak was not met.
Demonstrators in central Tahrir Square, focal point of an uprising that has rocked the Arab world and alarmed Western powers, said they would intensify their 12-day battle to oust the president who has vowed to stay on until September.
After nightfall, soldiers fired shots in the air to try to disperse the crowd, punctuating the festival atmosphere that had marked most of the day. But the demonstrators remained and the troops abandoned the attempt.
Sunday morning, the armed forces tried to get the nation back to work on the first day for banks to open after a week-long closure due to unrest in which up to 300 people may have been killed.
Armored personnel carriers stood guard at Cairo intersections where soldiers had erected sandbag barriers. Buses dropped employees off at large state banks.
The government's willingness to talk to the Brotherhood was testimony to the ground that protesters have gained since the protests, triggered by frustration over corruption, economic hardship and political oppression during Mubarak's 30-year-rule, first swept the nation on January 25.
Before then, members of the Brotherhood, by far the best organized opposition group, were regularly rounded up and jailed. The demonstrators around Tahrir Square, largely young and secular, lack their clear organization and leadership.
There have been signs of compromise in the opposition movement, with leaders backing off their refusal to talk to the government until Mubarak, 82, and the old guard leave.
But many reformists are determined to immediately force out Mubarak, a former air force commander who took over when Anwar Sadat was assassinated in 1981, fearing a loss of momentum in popular anger.
The government said in a statement after the meeting that the sides agreed to draft a road map for talks, indicating Mubarak would stay in power to oversee change.
It would also move to release jailed activists, guarantee press freedom and lift Egypt's emergency laws. A committee was set up to study constitutional issues.
Footage showed Vice President Omar Suleiman, a former intelligence chief, chairing the talks with a portrait of Mubarak behind him. But the opposition said the government failed to meet their demand for a complete overhaul of the political system.
Abdel Monem Aboul Fotouh, a senior Brotherhood figure, said the government statement represented "good intentions but does not include any solid changes."
Mohamed Adel, of the Sixth of April youth group which has been among the core protesters, said: "They evade the demands of the people."
Opposition activists reject any compromise which would see Mubarak hand over power to Suleiman but also serve out his term -- essentially relying on the old authoritarian system to pave the way to full civilian democracy and saving his face.
Nobel peace laureate Mohamed ElBaradei, who has emerged as a figurehead for the opposition coalition, criticized the fledgling negotiations and said he was not invited.
The talks were managed by the same people who had ruled Egypt for 30 years, he told NBC television in the United States.
"It's managed by Vice President Suleiman," ElBaradei said. "It is all managed by the military and that is part of the problem."
ElBaradei, former director of the United Nations nuclear agency, said there was a big fear that the old government would retrench and return to power. The focus should be on the government, not Mubarak, he said.
"No, of course he doesn't have to leave Egypt at all," said ElBaradei. "He is an Egyptian, he has absolutely the right to live in Egypt."
Gamal Soltan, editor of the independent newspaper al-Mesryoon, said the dialogue with Suleiman was too vague. The protesters would not leave before their demands were met.
"The problem is that the regime's hesitancy in taking serious steps will lead to complications and the increase of the popular demonstrations and possibly force an army intervention."
However, Rachid Mohamed Rachid, who was sacked along with the rest of the cabinet by Mubarak in response to protests, said: "I believe the presence of Mubarak in the next phase of transition for the next few months is very critical."
The United States, which had bankrolled Mubarak and the army to the tune of $1.3 billion a year, has backed the talks but said dialogue must be given time.
Washington and its allies were caught by surprise by the uprising against Mubarak's government, whom they saw as a bastion against Islamic militancy and a friend, albeit a reluctant one, of Israel.
The United States has called for gradual change in order to achieve an orderly handover of power but has given confused messages about when exactly it thought Mubarak should step down.
GUNFIRE IN THE AIR
The commander of the army, which many say holds the key to Egypt's future, toured Tahrir Square Saturday to try to persuade the protesters to leave the usually busy intersection.
Thousands gathered there Sunday despite unseasonably bad weather, joining noon prayers to honor the "martyrs" killed in the bloodshed of the last few days. Groups read poetry, sang and danced to drums.
But in the evening, soldiers fired shots in the air to disperse the crowd and tried to move in Armored vehicles. The army tried similar tactics Saturday and protesters laid down in front of tanks to stop them moving.
"The coward is a coward and the brave is a brave and we will not leave the square," said Sameh Ali, a protester in his 20s.
But many Egyptians, even some who joined the demonstrations, say they are desperate for a return to normal life.
Shops have been closed, making it hard for people to stock up on basic goods. Some prices have risen, and economic growth, which was running at 6 percent, is expected to suffer.
The pound closed at 5.93 to the U.S. dollar having weakened by 1.3 percent since it was last traded on January 27.
(Reporting by Samia Nakhoul, Marwa Awad, Shaimaa Fayed, Alexander Dziadosz, Yasmine Saleh, Sherine El Madany, Jonathan Wright, Andrew Hammond, Tom Perry and Alison Williams in Cairo; Erika Solomon in Dubai, Writing by Peter Millership and Angus MacSwan; Editing by Ralph Boulton)