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As the ultimatum expired, hundreds of thousands of anti-Mursi protesters in Tahrir Square in central Cairo let off fireworks, cheered and waved Egyptian flags in celebration.
There was no immediate comment from the armed forces, and a spokesman said no fixed time had been set for a statement. Egyptian blogger Su Zee tweeted: “And in typical Egyptian fashion, #egypt is late for its own coup.”
The Arab world’s most populous nation has been in turmoil since the fall of Hosni Mubarak as Arab Spring uprisings took hold in early 2011, arousing concern among allies in the West and in Israel, with which Egypt has a 1979 peace treaty.
U.S. oil prices rose to a 14-month high above $100 a barrel partly on fears that unrest in Egypt could destabilise the Middle East and lead to supply disruption.
The massive protests showed that the Brotherhood had not only alienated liberals and secularists by seeking to entrench Islamic rule, notably in a new constitution, but had also angered millions of Egyptians with economic mismanagement.
Tourism and investment have dried up, inflation is rampant and fuel supplies are running short, with power cuts lengthening in the summer heat and motorists spending hours fuelling cars.
Less than three hours before the deadline for Mursi to agree to share power or make way for an army-imposed solution, the president’s spokesman said it was better that he die in defence of democracy than be blamed by history.
“It is better for a president, who would otherwise be returning Egypt to the days of dictatorship, from which God and the will of the people has saved us, to die standing like a tree,” spokesman Ayman Ali said, “Rather than be condemned by history and future generations for throwing away the hopes of Egyptians for establishing a democratic life.”
Yet despite Islamist talk of martyrdom and warnings of civil war, the dominant mood in Cairo streets was one of elation rather than foreboding.
Earlier, in an emotional, rambling midnight television address, Mursi said he was democratically elected and would stay in office to uphold the constitutional order, declaring: “The price of preserving legitimacy is my life.”
Liberal opponents said it showed he had “lost his mind”.
The official spokesman of the Muslim Brotherhood said supporters were willing to become martyrs to defend Mursi.
“There is only one thing we can do: we will stand in between the tanks and the president,” Gehad El-Haddad told Reuters at the movement’s protest encampment in a Cairo suburb that houses many military installations and is near the presidential palace.
Armed forces commander General Abdel Fattah al-Sisi held a lengthy meeting with the main liberal opposition leader, Nobel peace laureate Mohamed ElBaradei, the top Muslim and Christian religious authorities and leaders of smaller Islamist parties and of the youth protest movement that led the anti-Mursi protests, the military said.
The Brotherhood’s political arm, the Freedom and Justice Party, refused an invitation to meet Sisi, saying it only recognised the elected president.
The Egypt25 television station owned and run by the Brotherhood broadcast live coverage of pro-Mursi demonstrations. The biggest was in a Cairo suburb where tens of thousands of protesters displayed posters of the president and cheered Islamist speakers.
The state-run Al-Ahram newspaper said Mursi was expected to either step down or be removed from office and the army would set up a three-member presidential council to be chaired by the head of the Supreme Constitutional Court.
A military source said the army was first holding consultations with political, social and economic figures and youth activists on its draft roadmap for the country’s future.
At least 16 people, mostly supporters of the president, were killed and about 200 wounded when gunmen opened fire overnight on pro-Mursi demonstrators at Cairo University.
The Brotherhood accused police of the shooting. The Interior Ministry said it was investigating and the governor of Giza province, where the clash occurred, submitted his resignation.
In central Cairo, many stores were shuttered and traffic unusually light. The stock market index recovered losses to close just 0.3 percent lower on hopes of a rapid solution to the crisis.
The Egyptian pound weakened against the dollar at a currency auction, and banks closed early, before the army deadline.
For the first time in many months, uniformed police were back patrolling the streets, and the Interior Ministry said in a statement it would “confront all forms of violence”.
“I could tell that the police are back with their full power on the streets like the old days before the Jan. 25 revolution,” said Amir Aly, 25, a protester outside the presidential palace.
Military sources told Reuters the army had drafted a plan to sideline Mursi, suspend the constitution and dissolve the Islamist-dominated upper house of parliament.
Coordinated with political leaders, an interim council would rule pending changes to the Islamist-tinged constitution and new presidential elections, the military sources said.
The opposition National Salvation Front, an umbrella group of liberal, secular and leftist parties, and the “Tamarud - Rebel!” youth movement leading the protests nominated ElBaradei to negotiate with army leaders on a transition.