U.S. still evaluating Mubarak's speech

U.S. President Barack Obama walks to the Oval Office of the White House in Washington February 10, 2011.

WASHINGTON (Reuters) - President Barack Obama met his security advisers on Thursday after watching Egyptian President Hosni Mubarak say on television he would transfer powers to his vice president but not resign.

U.S. officials made no immediate comments on Mubarak's address, which provoked rage on the streets of Egypt among protesters who had been expecting him to step down after 17 days of unrest.

Egypt is a key U.S. ally in the Middle East. Before Mubarak's speech, Obama said the United States would support an "orderly and genuine" transition to democracy in the most populous Arab country, whose powerful military gets about $1.3 billion a year in aid from Washington.

Analyst Stephen Grand of the Brookings Institution think tank said the United States must "use all of its leverage to get Mubarak to recognize that he needs to leave" and cast doubt on the new vice president, former intelligence chief Omar Suleiman.

"We need to help the Egyptians find a mechanism for a credible transition," Grand said. "Omar Suleiman has shown that he's not a credible figure."

The United States has walked a fine line since the demonstrations began, endorsing the democratic aspirations of the protesters but trying not to openly desert a long-time ally or encourage an abrupt upheaval that could lead to chaos.

Egypt's strategic importance to the United States includes its role in Middle East peace efforts after Cairo signed a peace accord with Israel in 1979, as guardian of the Suez Canal and as a counterweight to Iran.

Obama, who was on a short domestic trip, watched Mubarak's speech on Air Force One and would meet with his national security team in Washington, his spokesman Robert Gibbs said.

The president did not respond to shouted questions from reporters as he returned to the White House.

'MOMENT OF TRANSFORMATION'

"It's a moment of transformation that's taking place because the people of Egypt are calling for change," Obama said during his visit to Michigan.

"And so going forward, we want those young people and we want all Egyptians to know America will continue to do everything that we can to support an orderly and genuine transition to democracy in Egypt."

CIA Director Leon Panetta told a congressional hearing earlier on Thursday that the situation was fluid and would depend on whether Egypt's leaders and opposition were making the "right decisions at the right moments."

"If it's done right, it will help us to promote stability in that part of the world," Panetta said. "If it happens wrong, it could create some serious problems for us and the rest of the world."

James Steinberg, the U.S. deputy secretary of state, told another congressional hearing that the United States is committed to ensuring that political changes in the Middle East do not threaten Israel and that "all who take part in Egypt's political future ... honor Egypt's historic peace treaty with Israel."

Steinberg pledged continued U.S. aid to help Egypt build democratic institutions and contend with economic challenges.

"As the transition unfolds, we will tailor our support to engage and nurture it," Steinberg said.

(Additional reporting by Jeff Mason in Marquette, Michigan, and Susan Cornwell, Phil Stewart, Matt Spetalnick and Tabassum Zakaria in Washington; Writing by Patricia Zengerle; Editing by John O'Callaghan and Will Dunham)