Panetta praises Egypt leader for democracy resolve

Egypt's president Mohamed Mursi (R) meets with U.S. Secretary of Defense Leon Panetta at the presidential palace in Cairo July 31, 2012.

CAIRO (Reuters) - U.S. Defense Secretary Leon Panetta said on Tuesday he was convinced Egypt's new Islamist president was committed to democratic reform, promising that Washington would continue to provide the country's army with significant financial aid.

Speaking after meeting Mohamed Mursi, the president, in Cairo for the first time as well as Field Marshal Hussein Tantawi, Egypt's top general, Panetta said he had used his meeting with Mursi to discuss issues such as border security and the threat from violent extremism.

"I was convinced that President Mursi is his own man and ... that he is truly committed to implementing democratic reforms here in Egypt," said Panetta.

He said he believed "that President Mursi and Field Marshal Tantawi have a very good relationship and are working together towards the same ends."

Panetta's visit comes amid political uncertainty and a power struggle between the military and the Muslim Brotherhood that is casting a shadow over the future of a country that remains without a permanent constitution, parliament or government.

Panetta said Washington was keen to support Egypt's transition to democracy and made it clear that U.S. military aid to Egypt - worth $1.3bn a year - would continue to flow.

"It was clear to me both from Field Marshal Tantawi and President Mursi that they too are committed in continuing in that relationship and our goal frankly is an Egypt that can secure itself in the region so it can be a strong democracy in the future," Panetta told reporters.

The military took power last year after the fall of staunch U.S. ally Hosni Mubarak and handed Mursi the leadership in June after he won what was regarded as the country's first democratic election.

DELICATE REBALANCING

Panetta's brief visit to Cairo, part of a week-long trip to North Africa and the Middle East including Israel, underscored the challenge Washington faces in recalibrating its policy towards Egypt.

For three decades, it strongly supported Mubarak, who repressed and marginalized Mursi's allies in the Muslim Brotherhood.

But Mubarak's overthrow last year in a popular uprising opened the door to elections that were swept by Islamists, unnerving Egypt's neighbor Israel, Washington's top ally in the region.

The main beneficiary was Mursi's Brotherhood, which has a history of hostile rhetoric towards Israel and a conservative social agenda that sits uneasily with U.S. attempts to promote personal freedoms including the rights of women and religious minorities in the Middle East.

During a visit by U.S. Secretary of State Hillary Clinton to Egypt in mid-July, Mursi pledged to abide by Egypt's international obligations, which include its 1979 peace treaty with Israel.

Egypt is also of strategic importance to the United States because of the Suez Canal, a vital conduit for trade and for U.S. military vessels.

Washington released its annual military aid for Egypt in March despite misgivings over its progress towards democracy, saying U.S. national security required continued military assistance.

The move followed the worst diplomatic spat between the two countries in years, which began at the start of the year when Egyptian authorities launched a crackdown on U.S.-funded pro-democracy groups.

Ties reached a low-point when several Americans were put on trial on charges of illegally funding local non-governmental organizations, but rebounded when the NGO workers were allowed to leave the country after a judge lifted a travel ban.

The visits by Clinton and now Panetta following Mursi's election victory appear to signal a new start.

(Editing by Tom Pfeiffer and Andrew Osborn)