* Rival factions hurl petrol bombs, stones outside palace
* Clinton calls for dialogue on contested constitution
* Vice president offers olive branch to opposition
* Interior Ministry says 32 arrests
By Yasmine Saleh and Marwa Awad
CAIRO, Dec 5 (Reuters) - Islamists fought protesters outside the Egyptian president’s palace on Wednesday, while inside the building his deputy proposed a way to end a crisis over a draft constitution that has split the most populous Arab nation.
Stones and petrol bombs flew between opposition protesters and supporters of President Mohamed Mursi, and the Interior Ministry said 32 people had been arrested and three police vehicles destroyed.
Two Islamists were hit in the legs by what their friends said were bullets fired during clashes in streets around the compound in northern Cairo. One of them was bleeding heavily. And a leftist group said Islamists had cut off the ear of one of its members.
Medical sources said 33 people had been wounded, but despite reports of fatalities, the Health Ministry said there had been no deaths.
Riot police were deployed between the two sides in Cairo to try to stop confrontations that flared after dark despite an attempt by Vice President Mahmoud Mekky to ease the crisis.
Mekky said amendments to disputed articles in the draft constitution could be agreed with the opposition. A written agreement could then be submitted to the next parliament, to be elected after a referendum on the constitution on Dec. 15.
“There must be consensus,” he told a news conference, saying opposition demands had to be respected to reach a solution.
Prime Minister Hisham Kandil called for calm to “give the opportunity” for efforts underway to start a national dialogue.
Facing the gravest crisis of his six-month-old tenure, Mursi has shown no sign of buckling to the protests, confident that Islamists can win the referendum and a parliamentary election to follow.
Many Egyptians yearn for an end to political upheaval that began with the overthrow of Hosni Mubarak in February 2011 and which has hurt the economy as investors and tourists have fled.
Protests spread to other cities, and offices of the Brotherhood’s political party in Ismailia and Suez were torched.
Egypt’s opposition coalition blamed Mursi for the violence and said it was ready for dialogue if the Islamist leader scrapped a decree he issued on Nov. 22 that gave him wide powers and shielded his decisions from judicial review.
“We hold President Mursi and his government completely responsible for the violence happening in Egypt today,” opposition coordinator Mohamed ElBaradei told a news conference.
“We are ready for dialogue if the constitutional decree is cancelled ... and the referendum on this constitution is postponed,” he said of the document written by an Islamist-led assembly that the opposition says ignores its concerns.
But liberals, leftists, Christians, ex-Mubarak followers and others opposed to Mursi have yet to generate a mass movement or a grassroots base to challenge the Brotherhood, which has come out on top in two elections since Mubarak’s overthrow.
“Today what is happening in the Egyptian street, polarisation and division, is something that could and is actually drawing us to violence and could draw us to something worse,” said ElBaradei, the former head of the U.N. nuclear watchdog.
Opposition leaders have previously urged Mursi to retract the Nov. 22 decree, defer the referendum and agree to revise the constitution, but have not echoed calls from street protesters for his overthrow and the “downfall of the regime”.
Mursi has said his decree was needed to prevent courts still full of judges appointed by ousted strongman Hosni Mubarak from derailing a constitution vital for Egypt’s political transition.
Earlier on Wednesday Islamist supporters of Mursi tore down tents erected outside the presidential palace by leftist foes who had begun a sit-in there.
“They hit us and destroyed our tents. Are you happy, Mursi? Aren’t we Egyptians too?” asked protester Haitham Ahmed.
Mohamed Mohy, a pro-Mursi demonstrator who was filming the scene, said: “We are here to support our president and his decisions and save our country from traitors and agents.”
Mekky said street mobilisation by both sides posed a “real danger” to Egypt. “If we do not put a stop to this phenomenon right away ... where are we headed? We must calm down.”
U.S. Secretary of State Hillary Clinton weighed into Egypt’s political debate, saying dialogue was urgently needed on the new constitution, which should “respect the rights of all citizens”.
Clinton and Mursi worked together last month to broker a truce between Israel and Hamas Islamists in the Gaza Strip.
Washington is worried about rising Islamist power in Egypt, a staunch U.S. security partner under Mubarak, who preserved the U.S.-brokered peace treaty Cairo signed with Israel in 1979.
British Foreign Secretary William Hague called for restraint on all sides. He said Egypt’s authorities had to make progress on the transition in an “inclusive manner” and urged dialogue.
The Muslim Brotherhood had summoned supporters to an open-ended demonstration at the presidential palace, a day after about 10,000 opposition protesters had encircled it for what organisers dubbed a “last warning” to Mursi.
State institutions, with the partial exception of the judiciary, have mostly fallen in behind Mursi.
The army, the muscle behind all previous Egyptian presidents in the republic’s six-decade history, has gone back to barracks, having apparently lost its appetite to intervene in politics.
In August Mursi sacked Mubarak-era army commander and defence minister Mohamed Hussein Tantawi and removed the sweeping powers that the military council, which took over after Mubarak fell, had grabbed two months earlier.
Investors have seized on hopes that Egypt’s turbulent transition, which has buffeted the economy for two years, may soon head for calmer waters, sending stocks 1.6 percent higher after a 3.5 percent rally on Tuesday.
Egypt has turned to the IMF for a $4.8 billion loan after the depletion of its foreign currency reserves. The government said on Wednesday the process was on track and its request would go to the IMF board as expected.
The board is due to review the facility on Dec. 19.
Elijah Zarwan, a fellow with the European Council on Foreign Relations, said that if Egypt was to find a compromise solution to its crisis, it would not be through slogans and blows.
“It will be through quiet negotiation, not through duelling press conferences, street brawls, or civil strife,” he said.