Under fierce pressure from street protests in which 36 people have been killed, Egypt's army chief promised to hand over to a civilian president by July and made a conditional offer for an immediate end to army rule.
Field Marshal Mohamed Hussein Tantawi, head of the military council that has ruled Egypt since Hosni Mubarak's overthrow on February 11, told the nation the army did not seek or want power.
The army is ready to go back to barracks immediately if the people wish that through a popular referendum, if need be, the 76-year-old said in a surprising segment of a televised speech on Tuesday.
But demonstrators in Cairo's Tahrir Square, braving clouds of tear gas, derided the offer, calling the referendum a stalling tactic and chanting Leave, leave. After midnight, people were still joining the thousands occupying the area.
Looking far from confident, Tantawi said parliamentary polls would begin on time, starting this coming Monday, and that a presidential vote would take place in June, far sooner than the military's previous plans that would have kept it in power until late 2012 or early 2013.
Tantawi, trying to defuse a surge of popular anger reminiscent of the movement that toppled Mubarak, also said the council had accepted the resignation of Prime Minister Essam Sharaf's cabinet, which would be replaced with a national salvation government to steer Egypt to civilian rule.
A military source said Tantawi's referendum offer would come into play if the people reject the field marshal's speech, but did not explain how the popular mood would be assessed. Tantawi may calculate that most Egyptians, unsettled by dizzying change, do not share the young protesters' appetite for breaking from the army's familiar embrace just yet.
He is trying to say that, despite all these people in Tahrir, they don't represent the public, said 32-year-old Rasha, one of dozens huddled around a radio in the nearby Cafe Riche, a venerable Cairo landmark. He wants to pull the rug from under them and take it to a public referendum.
The concessions, agreed in a meeting between the army and some politicians, have been wrenched from the military by five days of protests in Tahrir Square and elsewhere, amid violence that has killed 36 people and wounded more than 1,250.
The response from some protesters was crisp and dismissive, some comparing the speech to Mubarak's final, despairing attempts to save himself by offering belated concessions.
Not enough of course, Shadi el-Ghazali Harb, a leader of the Revolutionary Youth Coalition, told Reuters.
The military council is fully responsible for the political failure Egypt is going through now. We demand a solution that strips the military council of all its powers immediately.
It is unclear who or what institution might carry out the functions of head of state if the council were dissolved.
Anger against the generals exploded this month after a cabinet proposal to set out constitutional principles that would permanently shield the army from civilian oversight.
The demonstrators, who again braved clouds of tear gas to occupy Tahrir Square, said the army must relinquish power now.
We demand a full purge of the system and the removal of the military council, said Fahmy Ali, one protester in Tahrir.
Protesters earlier hanged from a lamp post an effigy of Tantawi, who was Mubarak's defence minister for two decades.
In Egypt's second city of Alexandria, hundreds of protesters marched to a military base waving their shoes in disgust at Tantawi's speech, chanting: Where is the transfer of power?
Tantawi's speech is just like Mubarak's. It's just to fool us, said 27-year-old Youssef Shaaban.
Clashes between police and demonstrators angry at the speech erupted in the eastern city of Ismailia, a witness said.
Protesters also took to the streets in Nile Delta cities north of Cairo, angry at the deaths and injuries in and around Tahrir, witnesses said. About 3,000 gathered in the industrial city of Mahalla al-Kubra. Some threw petrol bombs at a police building. People also demonstrated in Tanta, and some also threw petrol bombs another police building there.
The unrest has knocked Egypt's markets. The benchmark share index has fallen 11 percent since Thursday, hitting its lowest level since March 2009. The Egyptian pound fell to its weakest against the dollar since January 2005.
The United States, which gives Egypt's military $1.3 billion (831.0 million pounds) a year in aid, called for an end to the deplorable violence in Egypt and said elections there must go forward.
We are deeply concerned about the violence. The violence is deplorable. We call on all sides to exercise restraint, White House spokesman Jay Carney said.
MEETING WITH POLITICIANS
The Muslim Brotherhood, which anticipates a strong showing in the election, was among five parties at the crisis talks with the military council. Three presidential candidates were also there. Others, including Mohamed ElBaradei, stayed away.
The revolutionary youth are not holding dialogue with the military council. The dialogue is going on in Tahrir Square, not behind closed doors with the generals, said Khaled Mardeya, a spokesman for the January 25 Revolution Coalition.
Beyond Cairo, violence has accompanied protests in some big cities but nationwide demonstrations against army rule have yet to match the vast numbers that turned out to topple Mubarak.
In Tahrir, activists tried to control access to the square. Volunteers on motorbikes ferried casualties from clashes with security forces firing tear gas near the Interior Ministry.
The mood among protesters was determined. The real revolution begins from today, said Taymour Abu Ezz, 58. Nobody will leave until the military council leaves power.
Political uncertainty has gripped Egypt since Mubarak's fall, while sectarian clashes, labour unrest, gas pipeline sabotage and a gaping absence of tourists have paralysed the economy and prompted a widespread yearning for stability.
Several banks in central Cairo were closed on Tuesday as a precaution against looting, the state news agency said.
In a stinging verdict on nine months of army control, rights group Amnesty International accused the military council of brutality sometimes exceeding that of Mubarak.
It said the military had made only empty promises to improve human rights. Military courts had tried thousands of civilians and emergency law had been extended. Torture had continued in army custody. Consistent reports spoke of security forces employing armed thugs to attack protesters.
(Reporting by Peter Apps in London, Marwa Awad, Omar Fahmy, Dina Zayed, Shaimaa Fayed, Tom Perry, Tamim Elyan, Patrick Werr and Edmund Blair in Cairo, Abdel Rahman Youssef in Alexandria and Yusri Mohamed in Ismailia; Writing by Alistair Lyon in Cairo; Editing by Alastair Macdonald in Cairo)