The trial of dozens of democracy activists including 16 Americans began on Sunday in a politically charged case which is threatening ties between Cairo and Washington and $1.3 billion (818.7 million pound) in annual U.S. military aid.

Forty-three foreign and Egyptian non-profit workers - including the son of the U.S. transportation secretary - are accused of receiving illegal funds from abroad and carrying out political activities unrelated to their civil society work.

In a crowded courtroom on the outskirts of Cairo, lawyers who said they were volunteering in the case against the activists, demanded the defendants be imprisoned and accused them of espionage.

These organisations are accused of espionage and going against the law. Most of them are in contact with the CIA. These organisations gathered information and reports on Egypt and sent them to the U.S. State Department, Khaled Suleiman, a lawyer acting against the organisations, said.

Those accused in the case were banned from leaving Egypt pending the trial and some of the U.S. citizens targeted in the probe have taken refuge at the American embassy.

As the session started and a prosecution lawyer began listing funds send from abroad to the non-governmental organisations, 13 defendants stood behind the courtroom's bars, all of them Egyptians.

Several of the accused foreigners were already abroad when the travel ban was enacted. Many of the activists had not been formally summoned to appear before the court.

Television reporters crowded around the presiding judge, Mahmud Mohamed Shukry, as he arrived in the rowdy chamber and an interior ministry official threatened to expel journalists.

This will be a procedural session. We will hear the charges and we will request the lifting of the travel ban, said defence lawyer Negad al-Borai.

DISCUSSIONS

A senior U.S. official said on Saturday Washington and Cairo were holding what he described as intense discussions to resolve the crisis within days.

Secretary of State Hillary Clinton, who arrived in the Moroccan capital after visits to Algeria and Tunisia, has met Egypt's foreign minister Mohamed Kamel Amr twice in the last three days, the official said on condition of anonymity.

The U.S. pro-democracy groups whose staff have been charged deny they have done anything illegal.

Egypt says the case is a judicial matter and all groups must heed Egyptian law. In the text of the charges the prosecution would present, the groups are accused of establishing without permission branches for their organisations and offering unauthorised political training and workshops to parties.

One of the judges leading the probe has said the non-governmental organisations had violated Egyptian tax laws by not declaring their income from abroad or paying taxes on their workers' pay and had carried out political activities unrelated to their civil society work.

Negad al-Borai, a lawyer representing the accused in Cairo, said the charges referred only to a short period in the groups' activities and could therefore be argued against.

The charges made involve only the period from March 2011 to December 2011, he told Reuters. These groups have applied for permits before that period.

Some Egyptian officials have linked the funding of civil society initiatives to a U.S. plot to undermine Egypt's sovereignty - accusations the United States and the civil society workers deny.

Among those accused is Sam LaHood, Egypt director of the International Republican Institute (IRI) and the son of the U.S. transportation secretary.

The crisis escalated on December 29 when Egyptian authority swooped the offices of IRI and the National Democratic Institute, confiscating documents and computers and cash on the premises.

The government and the ruling military council say the case was initiated by the judiciary and is out of their hands.

(Additional reporting by Arshad Mohammed in Rabat, Writing by Dina Zayed; Editing by Sophie Hares)