SCENESETTER FOR GENERAL PETRAEUS' VISIT TO EGYPT

S E C R E T SECTION 01 OF 03 CAIRO 001185

NOFORN
SIPDIS

E.O. 12958: DECL: 06/22/2019
TAGS: PREL PARM MASS MOPS IR IS KPAL PHUM KDEM
ECON, EG
SUBJECT: SCENESETTER FOR GENERAL PETRAEUS' VISIT TO EGYPT

REF: A. CAIRO 747

B. CAIRO 448

C. CAIRO 1114

Classified By: Ambassador Margaret Scobey per 1.4 (b) and (d).


1. Key Points:

-- (S/NF) Since your last visit in December 2008, President
Obama's well-received Cairo speech has reinvigorated the
tenor of our bilateral relationship.

-- (S/NF) However, a sense of renewal in our bilateral
relationship has not yet resulted in tangible improvements in
our mil-mil relationship, but the Ministry of Defense
recognizes and appreciates the increased engagement with U.S.
Central Command (CENTCOM) over the last six months.

-- (S/NF) Egypt continues to view Iran as the region's
greatest strategic threat, but is also very concerned about
the potential for Sudanese instability. Egyptian efforts on
Palestinian reconciliation, a durable cease fire in Gaza,
training the Iraqi military, and appointing a new ambassador
to Iraq all serve Egypt's goal of reducing Iranian
interference in regional affairs.

-- (S/NF) Egypt has reportedly increased counter smuggling
efforts, with a focus on stopping arms before they enter
Egypt from Sudan and other areas. The Egyptians also report
success in interdicting illicit funds destined for Gaza.


2. (S/NF) General Petraeus, welcome back to Egypt. At first
glance, seemingly little has changed since your last visit -
Egyptian efforts on Palestinian reconciliation and securing a
durable cease fire in Gaza are ongoing and Defense Minister
Tantawi continues to hesitate expanding cooperation on
countering arms smuggling. The overall tone of our bilateral
relationship, however, has warmed. Building upon the
cautious optimism generated by a new U.S. administration and
President Obama's well-received June 4 speech in Cairo, we
established a new framework for regular bilateral meetings
with the Egyptians to explore new areas for cooperation
through an open, frank dialogue. We are exploring other ways
to translate this sense of goodwill into concrete action,
including by expanding cooperation across a wide-range of
political, economic, and cultural issues.


3. (S/NF) We are hoping to leverage the tone of rejuvenation
in our bilateral relationship to foster new discussions with
Egypt on transforming our military cooperation beyond the
annual flow of Foreign Military Financing (FMF). Tantawi and
his senior leaders recognize and appreciate increased
engagement with CENTCOM, which will provide a strong base for
U.S. efforts to expand the Egyptian military's mission to
reflect new regional threats. Egypt's renewed offer to train
Iraqi military officials - if accepted by the Iraqis -
provides the perfect opportunity for the Egyptian military to
play a greater role in supporting regional security. We have
requested meetings with President Mubarak, Defense Minister
Tantawi, and EGIS Chief Omar Soliman.

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President Mubarak: Beware of Iran
--------------


4. (S/NF) President Mubarak will make it clear that he sees
Iran as Egypt's -- and the region's -- primary strategic
threat. His already dangerous neighborhood, he will stress,
has only become more so since the fall of Saddam, who, as
nasty as he was, nevertheless stood as a wall against Iran,
according to Mubarak. He now sees Tehran's hand moving with
ease throughout the region, "from the Gulf to Morocco," as he
told a recent congressional delegation. The immediate threat
to Egypt comes from Iranian conspiracies with Hamas (which he
sees as the "brother" of his own most dangerous internal
political threat, the Muslim Brotherhood) to stir up unrest
in Gaza, but he is also concerned about Iranian machinations
in Sudan and their efforts to create havoc elsewhere in the
region, including in Lebanon via Hezbollah (Sudanese
instability in general is also a serious concern for the
Egyptians). While Tehran's nuclear threat is also a cause
for concern, Mubarak is more urgently seized with what he
sees as the rise of Iranian surrogates (Hamas and Hezbollah)
and Iranian attempts to dominate the Middle East. Mubarak
supports the U.S. talking with Iran, but will warn against
placing trust in Iranian promises.


5. (S/NF) Mubarak hailed President Obama's June 4 Cairo
speech to the Muslim world and has welcomed our renewed
public focus on the Arab-Israeli conflict, including the
frequent visits to Cairo by Special Envoy for the Middle East
Senator George Mitchell. You should thank Mubarak for
Egypt's efforts to strengthen relations with the Iraqi
government, including by naming Sherif Shaheen, currently
Ambassador to Zambia, as the Egyptian Ambassador to Iraq.
You should also express support for Mubarak's renewed offer
to train the Iraqi military, which he made during a recent
visit by the Iraqi Minister of Defense, and offer assistance
in persuading the Iraqis to accept the offer.

--------------
Minister Tantawi: Counter Smuggling, End-Use
--------------


6. (S/NF) Overall, the Egyptian government continues to
employ a wide range of military, security, intelligence, and
diplomatic efforts to combat the flow of arms to Gaza. Egypt
has reported success in identifying and intercepting arms
smuggling networks from Sudan to Cairo, as well as
interdicting illicit funds destined for Gaza (septel). Egypt
has increased physical security along the Egypt-Sudan border
with additional Border Guard Forces and increased aerial
patrols, according to MOD officials (ref A).


7. (S/NF) Tantawi continues, however, to resist U.S. offers
of additional counter smuggling assistance, such as a
proposal by the U.S. Army Corps of Engineers to provide a new
tunnel destruction capability. Sovereignty concerns are
likely driving his hesitation, along with concerns that FMF
funds may be directed away from more high-profile programs
like M1A1 tanks and aircraft. You should encourage Tantawi
to accept additional U.S. assistance, especially along the
remote Egypt-Sudan border. You should also remind Tantawi
that no single technology can stop smuggling. Success will
depend on how well Egypt uses all available tools and
resources to identity and disrupt smuggling networks. He
will likely reply that BTADS - once operational in February
2010 - and the subterranean steel wall MOD plans to begin
installing along the Egypt-Gaza border in October 2009, will
provide a sufficient counter smuggling capability. As in the
case of Tantawi's decision to sever the satellite link and
discontinue the use of GPS technology with BTADS (ref B),his
approach to border security likely has Mubarak's support.


8. (S/NF) As during your previous meeting, Tantawi will
likely express concern over releasability issues and
frustration with Egypt's inability to procure restricted
weapons systems. Since 2006, the Department of State has
notified Congress of six potential end-use violations by the
Egyptian military. We are currently investigating two
additional cases, one involving the visit of a Chinese
military official to an F-16 facility and another involving
civilian use of a synchrolift belonging to the Egyptian Navy.
The Office of Military Cooperation has begun training
mid-level military officials on Egypt's end-use obligations,
which has already resulted in averting a potential end-use
violation (ref C). Concerns of Egypt's potential violations
has held up State Department approval for amendments to the
M1A1 co-production agreement and the purchase of 24 F-16
aircraft. We hope to resolve these end-use concerns during a
visit from State/PM at the end of July.

--------------
Soliman: Reconciliation Efforts Continue
--------------


9. (S/NF) Egypt remains committed to cementing a durable
Israeli-Hamas cease-fire and facilitating Palestinian
reconciliation. EGIS Chief Soliman will brief you on his
latest efforts and stress that Gaza remains a very serious
security threat to Egypt. The Egyptians continue to meet
with Israeli, Fatah and Hamas officials, including Khaled
Mishal on June 13 and Israeli Defense Minister Barak on June

21. Soliman is seeking compromise from the Palestinian
factions on security arrangements in Gaza as well as
agreement on an electoral framework for the planned January
2010 elections. He expects to reconvene the factions in
Cairo before July 7.


10. (S/NF) Soliman will likely reiterate his previous
message that Egypt can be helpful in the Afghanistan/Pakistan
context, especially as regards the Taliban. He will also
express a shared interest in bolstering the Iraqi government
and military and coaxing Syria away from Iran and its
interference in Lebanon.

--------------
Internal Politics and Economics
--------------


11. (C) We continue to promote democratic reform in Egypt,
including the expansion of political freedom and pluralism,
and respect for human rights, albeit without the public
confrontations that had become routine over the past several
years. The GOE remains skeptical of our role in democracy
promotion, complaining that any efforts to open up will
result in empowering the Muslim Brotherhood, which currently
holds 86 seats in Egypt's 454-seat parliament. Upcoming
parliamentary elections in 2010 and presidential elections in
2011 are the focus of most domestic political discussions at
present. President Mubarak may well run for another
five-year term in 2011, although nothing is certain. A newly
passed amendment creating 64 new seats for women in the lower
house of parliament, the People's Assembly, has stirred
rumors of a possible dissolution of the parliament and early
elections.


12. (SBU) Egypt was somewhat spared the early effects of the
global credit crunch since Egyptian banks operate very
conservatively, have low loan-to-deposit ratios, and have by
and large avoided involvement with derivative investments and
risky financial products. The effects of the ensuing global
economic crisis are now being felt in Egypt and growth,
though still positive, has slowed. Egypt remains vulnerable
as exports, Suez Canal revenues, tourism, and expatriate
remittances -- its largest sources of revenue -- are all down
and continue to fall. The government has taken some measures
to stimulate domestic demand, but the effect of these
measures is not yet clear. GDP, which had been growing at a
6-7% annual rate has slowed to 3-4% in the current year; not
too bad during a global recession, but insufficient to
sustain an economy and to support Egypt's large and growing
population. Egypt continues to suffer from widespread poverty
affecting 35-40% of its population, particularly in rural
areas and in Upper Egypt. Economic reform has stalled as
Egypt's economic policymakers attempt to digest the twin hits
of high inflation in 2008 (upwards of 20%) followed by the
global economic crisis. Egypt's budget for fiscal 2009/10
projects a deficit of greater than 8% which is where it stood
when reforms were begun in 2004. Egyptian-U.S. trade has
more than doubled over the last four years, reaching almost
$9 billion in 2008. The U.S. exports to Egypt about twice as
much as it imports, and Egypt has become the seventh largest
market for U.S. agricultural exports.

SCOBEY