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Egypt’s Muslim Brotherhood said on Monday it could pull out of talks with the government if opposition demands were not met, including the immediate exit of President Hosni Mubarak who on Monday chaired a cabinet meeting.

Mubarak, 82, who refused calls to end his 30-year-old rule before September polls, saying his resignation would cause chaos in the Arab world’s most populous nation, has tried to focus on restoring order and his government seems to be buying time. Protesters, barricaded in a tent camp in Tahrir Square in the heart of Cairo, have vowed to stay until Mubarak quits and hope to take their campaign to the streets with more mass demonstrations on Tuesday and Friday. Keen to get traffic moving around Tahrir Square, the army tried early on Monday to squeeze the area the protesters have occupied. Overnight campers rushed out of their tents to surround soldiers attempting to corral them into a smaller area. The powerful army’s role in the next weeks is considered critical to the future of Egypt.

“The army is getting restless and so are the protesters. The army wants to squeeze us into a small circle in the middle of the square to get the traffic moving again,” protester Mohamed Shalaby, 27, told Reuters by telephone.

The uprising, which some activists have called the “Nile Revolution”, may have cost 300 lives so far, according to the United Nations. The opposition has been calling for the constitution to be rewritten to allow free and fair presidential elections, a limit on presidential terms, the dissolution of parliament, the release of political detainees and lifting of emergency law.

“We are assessing the situation. We are going to reconsider the whole question of dialogue,” the Brotherhood’s Essam el-Erian told Reuters on Monday. “We will reconsider according to the results. Some of our demands have been met but there has been no response to our principal demands that Mubarak leave”.

The Muslim Brotherhood movement was among the groups that met Egyptian government officials at the weekend, a sign of how much has already changed in an uprising that has rocked the Arab world and alarmed Western powers.

The presence at the weekend talks of the banned movement,

whose members have for years been repressed by Mubarak’s feared security forces, was a significant development that would have been unthinkable before the uprising.

The Brotherhood is seen as by far the best organised opposition group, whose potential rise to power troubles Egypt’s Western allies.

Opposition figures reported little progress in the talks.

While protesters worry that when Mubarak does leave, he will be replaced not with the democracy they seek but with another authoritarian ruler.

Cabinet meets

The government issued a statement after a first round of talks on Sunday and said there was agreement on a road map for talks, which gave little ground on many opposition demands.

It suggested reforms would be implemented with Mubarak staying in power until September. It also put conditions on lifting emergency law, which the opposition says has been used to stifle dissent and should end immediately.

Mubarak’s new cabinet pledged on Monday to keep subsidies and draw in foreign investment in its first meeting since the uprising against poverty, high prices and an end to Mubarak’s rule.

With a government pledging to reform, an opposition with limited political experience, a constitutional process that mitigates against haste, and a key strategic role, Egypt’s next steps must be considered carefully, U.S. officials say.

The opposition has made big gains in the past two weeks.

Mubarak has said he will not run again for president, his son has been ruled out as next in line, a vice president has been appointed for the first time in 30 years, the ruling party leadership has quit and the old cabinet was sacked.

Perhaps more important, protesters now take to the streets almost with impunity in their hundreds of thousands. Before January 25, a few hundred would have met a crushing police response in this U.S. ally whose army receives $1.3 billon in aid annually.

Over the horizon

Appearing to soften her position for Mubarak to step down, U.S. Secretary of State Hillary Clinton has said her policy on Egypt looks “over the horizon” to its possible democratic future — a future that must be carefully planned. The cautious U.S. approach to the unrest shaking its strategic Middle East partner has come at a cost, putting the Obama administration out of step with the protesters who say Mubarak must quit now for serious political talks to take place. As allies coalesced around the U.S. position, German Chancellor Angela Merkel’s spokesman Steffen Seibert said it was clear that the Mubarak era was in its final phase and there would be other leaders.

“That is what’s important for us, that this new direction is clear and irreversible,” he said, adding: “It’s not so important that individual people resign or whether there is a competition to have the quickest possible election.” Egypt’s government tried to get the country back to normal when the working week began on Sunday. Banks reopened after a week-long closure with lines of customers accessing accounts but hours, and withdrawals, were limited. Schools remained shut.

Several major Egyptian business concerns resumed business. In another move to restore normality, authorities shortened the curfew, largely ignored by the hard-core protesters, to start at 8 p.m. and end at 6 a.m..

Many Egyptians, including those who took part in nationwide demonstrations last week against Mubarak, are keen to get back to work and are worried about the effects of the crisis on stability, the economy and the important tourism sector.

Egypt’s pound weakened to a six-year low on the second day of trade after a week-long closure. State-controlled banks seemed to be selling dollars to support the pound.

“Things are stable. I can’t say they’re good, but they’re not collapsing,” said a trader at a Cairo-based bank.