CAIRO (Reuters) - Egyptian President Hosni Mubarak's deputy began talks on sweeping reforms with the opposition on Monday, as pressure from street protests, Western allies and the army appeared to be ending Mubarak's 30 years of one-man rule.
After a week of unprecedented rallies against poverty, corruption and oppression under the 82-year-old military-backed leader, newly-appointed Vice President Omar Suleiman appeared on state television to say Mubarak had asked him to begin dialogue with all political forces on constitutional and other reforms.
The channel later said talks had begun. Suleiman also said a new government sworn in by Mubarak on Monday would fight unemployment, inflation and corruption -- all key grievances.
But opponents, ranging from young, secular dissidents to a mass Islamist movement, want Mubarak to quit altogether. They hope to rally a million people onto the streets on Tuesday and have taken heart from an assurance from the army that it will not fire on them as they air their "legitimate" demands.
At central Cairo's Tahrir Square, where thousands kept vigil through the night in defiance of a curfew, 45-year-old lawyer Ahmed Helmi said concessions were too late: "The only thing we will accept from him is that he gets on a plane and leaves."
It seems unlikely Mubarak could preside for long within any new system that brings free elections to the most populous Arab state. After the fall of Tunisia's veteran strongman two weeks ago, the shift will send a shockwave throughout the Middle East.
The United States, which has backed him as a bulwark against radical Islam and as a friend to Israel, said Mubarak must revoke the emergency law under which he has ruled since 1981 and hold free elections. Washington has sent a special envoy, former ambassador to Cairo Frank Wisner, to meet Egyptian leaders.
"The way Egypt looks and operates must change," said Robert Gibbs, spokesman for President Barack Obama.
Western powers have been caught off guard by the speed with which Mubarak's police state has been pushed back by furious but unarmed citizens. High on the Western agenda now will be trying to prevent a full-blown takeover by anti-Western Islamists.
Some analysts believe the army is seeking a face-saving way to have Mubarak leave in a way that preserves the 60-year-old influence of the military and ruling party over Egypt.
A presidential election due in September might give Mubarak the opportunity simply to say he will not run again. But such a tactic may underestimate the desire on the street to see him go. "It won't work. These are stalling tactics. I don't think Mubarak quite realizes the gravity of the situation," said Faysal Itani of Exclusive Analysis. "If this deadlock goes on much longer there could be a further breakdown of order."
At Cairo University, politics professor Hassan Nafaa said: "This all aims to gain time, calm the mood on the street, drive the protesters away and diminish the revolution ... The president must end his rule and leave, there is no alternative."
Israeli Prime Minister Benjamin Netanyahu, for whom Egypt has been one of very few friendly neighbors, said he feared that the Muslim Brotherhood, a banned mass movement, could turn Egypt into the kind of theocracy installed in Iran in 1979.
The Brotherhood itself, which has taken a back seat to young, urban dissidents in the past week, has said it would seek a pluralist democracy. It has also called for mass protests.
Tony Blair, the international peace envoy, said of changes sweeping the Middle East: "This is a region in transition. The question is where is it transiting to. It can transit to a concept of society and the economy and politics that is 21st century. Or it can be taken backwards into a very reactionary form of religious autocracy. We don't want that."
Suleiman, an intelligence chief, was named by Mubarak on Saturday as his first ever vice president, a move that gave a first hint that he was thinking about an eventual handover.
Appearing on television, Suleiman said: "The president has asked me today to immediately hold contacts with the political forces to start a dialogue about all raised issues that also involve constitutional and legislative reforms."
"It's too little too late," said Omar Ashour of Exeter University. "He's trying to treat a malignant cancer with an aspirin. They are still in their own world ... They have ignored the main demands that are coming from Tahrir Square."
Among demands, beyond Mubarak's departure, are an end to an emergency law that gives the ruling party an effective veto over who can run for president and the dissolution of the parliament elected last year in a vote which many believe was rigged.
An armed forces statement said: "The armed forces will not resort to use of force against our great people. Your armed forces, who are aware of the legitimacy of your demands."
Since Friday, after Mubarak's hated police fought battles with young demonstrators, the army has been on the streets in a massive show of force backed by its U.S.-built tanks. But the soldiers, widely admired by Egyptians, have looked on patiently.
The uprising erupted amid frustration over repression, corruption, poverty and the lack of democracy. It was in part inspired by the fall of Tunisia's strongman leader on January 14 and has now prompted talk of a domino effect like that of 1989 which swept Soviet puppet governments out of eastern Europe.
"Something historic is happening in the Arab world," Finnish Foreign Minister Alexander Stubb said. "But it's too early to say whether this is the Berlin Wall moment, the 1989 moment."
About 140 people have died in clashes with security forces in scenes that overturned Egypt's standing as a stable country, promising emerging market and attractive tourist destination.
Although the movement started with no clear leaders or organization, the opposition is taking steps to organize. The Muslim Brotherhood said it was seeking to form a committee with retired U.N. diplomat Mohamed ElBaradei to talk to the army.
Foreign governments scrambled to ensure the safety of their nationals trapped by the unrest in Egypt. One group of tourists was hunkered down in Cairo's Marriott Hotel:
"I had heard a lot about Egypt's history and the pyramids so I am very disappointed I cannot see all that, but I just want to get out," said Albert So, an accountant from Hong Kong.
Companies, from gas drillers to supermarkets, also pulled out staff as confrontation brought economic life to a halt. Financial markets and banks were closed for a second day.
Internationally, Europe's benchmark Brent crude oil hit $101 a barrel on fears the unrest could spread to oil producing states like Saudi Arabia. Smaller Arab countries such as Yemen, Sudan, Syria and Jordan were all mentioned by analysts as candidates for popular expressions of discontent.
Moody's downgraded Egypt's credit rating to Ba2 with a negative outlook from Ba1, saying the government might damage its weak finances by increasing social spending.
Additional reporting by Andrew Hammond, Patrick Werr, Dina Zayed, Marwa Awad, Shaimaa Fayed, Sherine El Madany, Yasmine Saleh, Alison Williams and Samia Nakhoul in Cairo, and Peter Apps, Angus MacSwan and William Maclean in London; Writing by Alastair Macdonald; editing by David Stamp