Matthew Hollingworth said in an interview last week that WFP is trying to feed 2.5 million people every month inside Syria – a tenth of the population – and a million outside, in a conflict that has left 70,000 dead.

He says his organization will need to almost double the number of people it reaches by the end of the year.

“It’s no secret that the conflict is intensifying, or has been intensifying over the last month,” said the WFP’s deputy regional emergency coordinator.

“The two parties of the conflict are digging in.”

“We are trying to keep up with the enormity of the crisis and the impact of the brutality,” he said.

Syria’s once-peaceful uprising against four decades of family rule turned violent after President Bashar al-Assad’s forces killed and arrested thousands, turning civil unrest into armed conflict.

Now huge swathes of the country are effectively lawless and independent armed groups on both sides have emerged, creating access and security issues for humanitarian groups.

“The way the country and the map is drawn these days, it’s not as simple as to say you’re moving from government-held territory into opposition-held territory,” said Hollingworth.

“You may have to cross three or four different front lines to get access … We run this gauntlet on a weekly basis, on a daily basis,” he said, adding that WFP’s weekly budget for the crisis was around $19 million.

International powers are increasingly concerned about the growing presence of hardline Islamist brigades and foreign jihadis who are flocking to Syria, and Hollingworth said that rebel ranks have grown increasingly disparate, bringing uncertainty to aid workers, who have to negotiate face to face as they travel around the vast country.

“What you see when you get out into the field is many different…brigades” he said. “They have a looser chain of command with the (western-backed) Free Syrian Army than perhaps we had seen six months ago.”

Aid workers have been targeted during the war by both sides. Several volunteers for the Syrian Arab Red Crescent, a Red Cross partner, have been jailed or killed and the United Nations says aid convoys have been shot at.

A HEAVY TOLL

Government forces appear to have made gains across Syria in recent weeks, even in northern provinces where rebels seized territory last year. They have also advanced around Damascus and the border with Lebanon, in areas that help link the capital to coastal provinces dominated by Assad’s Alawite minority.

Rebels, mostly from the Sunni Muslim majority, hold chunks of southern, eastern and northern Syria. While the government says the military campaign against the rebels is succeeding, aid workers in Aleppo say the area of the country’s biggest city that is now controlled by the government is very small.

The toll on Syrians is huge, Hollingworth says, with some internally displaced people having to move two or three times to escape growing violence. Food is so scarce for those uprooted by the fighting that rations intended to feed a family of five are being shared by three families.

Some host families are looking after five times the number of people that would normally live in their home, he added.

“What happens is, the more times they’re displaced, the more vulnerable they become. Their resources dwindle over time.”

“You’ll find 10, 15, 20 people living in one room. They come from, in some cases, pretty diverse backgrounds. But they live together and they support each other,” he said.

Hollingworth worries that Syria’s youth have become “deadened” to the violence and fears the conflict “will go on for a couple of generations.”

UNICEF regional coordinator Youssef Abdul-Jalil estimated that three million children inside Syria now needed humanitarian assistance: “They are paying a terrible price in their lives, in their surroundings, in their health, in their education and in their lack of protection”.

“We need a political solution for this conflict,” said Marc Lucet, the local emergency coordinator for UNICEF, whose fellow humanitarian workers recount grim tales of hungry refugees found cowering in half-built apartment blocks or idle factories.

Stressing his point Lucet said: “The solution is certainly not to give more weapons to either side.”

(Additional reporting by Erika Solomon,writing by Oliver Holmes and Samia Nakhoul; editing by Anna Willard)

Yet in the neighborhood of Malki, a tree-lined enclave of central Damascus, a wealthy group of elite, pro-government Syrians still enjoy shopping for imported French cheeses, gourmet hand-made chocolates and iPad minis in the well-stocked, recently built Grand Mall and in nearby boutiques.

Such are the parallel realities of a conflict in which, for all the gains made by rebels and the current chatter about U.S. “red lines” crossed that might ultimately draw in Western might, President Bashar al-Assad is holding his ground in the capital, bulwarked by his own foreign allies and by many Syrians who fear his end could prove fatal for them too. And so life goes on.

In Malki, sprinklers water the manicured lawns outside their blocks of million-dollar apartments. Maids and drivers cater to their every whim and birds sing in the trees. Fuel for their BMWs and electricity for their air-conditioning is plentiful and the well-guarded streets are free of loiterers.

“Look at this display and you feel all is well, life is good and everything is here,” said an elegantly dressed Hiyam Jabri, 50, as she placed her order at the delicatessen counter in the mall’s main supermarket.

Malki residents continue to enjoy material comforts and abundant supplies of imported goods, even as millions of their compatriots subsist on food handouts.

The United Nations World Food Programme estimates it is feeding 2.5 million people inside Syria – a tenth of the population – and a further million who have fled the country, offering them subsistence rations of flour and rice.

“We are trying to keep up with the enormity of the crisis and the impact of the brutality,” the WFP’s deputy regional emergency coordinator Matthew Hollingworth said in the capital.

Most of those whom his staff help “haven’t been displaced once but sometimes twice, three times”. Food is so scarce for those uprooted by the fighting that rations intended to feed a family of five are being shared by three families.

ILLUSIONS

Even in Malki, though, the air of normality is an illusion – as unreal as the oft-repeated assertions of government officials that victory is near and Assad still controls almost all Syria.

Scratch the surface of the illusion and the normality quickly becomes anything but.

Pasted to the lamp-post outside the elegant chocolatier Ghraoui, whose interior boasts award certificates from France, is a wad of black and white fliers. They are printed by families and they mourn sons and husbands killed in the war.

It is a war, however, that seems to be going nowhere fast.

Recent days have shown again the reluctance of the United States and its allies, in the face of evidence Assad’s troops may have crossed President Barack Obama’s “red line” by using chemical weapons, to intervene militarily against him – not least as some rebels have espoused the cause of al Qaeda.

Among the few independent outsiders seeing at first hand the mosaic of opinion and suffering in Syria, many aid workers lament that international discourse has become a monotone debate on supplying weapons, with little push for a negotiated peace.

“We need a political solution for this conflict,” said Marc Lucet, the local emergency coordinator for UNICEF, whose fellow humanitarian workers recount grim tales of hungry refugees found cowering in half-built apartment blocks or idle factories.

The surface serenity of Malki contrasts with what aid groups say is a country splintered by ever shifting frontlines and a fragmenting opposition; many fear violence will spread beyond Syria’s borders and are baffled by the debate in the West over how far to arm rebels, saying this will only make matters worse.

Stressing the need for a political settlement, however, unpalatable and, so far, unattainable, UNICEF’s Lucet said: “The solution is certainly not to give more weapons to either side.”

Attempts to bring Assad down by diplomatic means have failed to break the impasse, even if they do make life less comfortable in Malki.

Inside the Ghraoui chocolate boutique, as everywhere else in Syria, sales are strictly cash only – sanctions have forced international credit card networks to boycott transactions here.

Prices on restaurant menus in local currency, the Syrian pound, have been hastily updated with stickers multiple times – a tell-tale sign of rapid inflation.

At the luxury mall supermarket, Eyad al-Burghol says he is selling fewer imported foodstuffs than before because many wealthy customers have left the country.

FIGHTING TALK

A distant thump of artillery fire serves as a reminder that, just a few kilometers (miles) away, fierce street-to-street battles are being fought between government and rebel forces. Some days, Russian-made MiG fighter jets streak across the sky on their way to bomb insurgent positions.

The abundant security in Malki, residents say, is provided by men who speak the Iranian tongue of Farsi, rather than Syrian Arabic. Tehran has long been Assad’s sponsor against his fellow Arab leaders and the word on the street – impossible to verify – is that this heavily guarded area of town may be home to the Syrian president himself and to his immediate family.

Assad is not seen in public these days and officials refuse to comment on his movements or whereabouts.

Senior Syrian officials try hard to show visiting reporters a picture of normality in which the government is firmly in control. But even the cocoon in which they live and work is starting to be punctured by the facts of war.

Syria’s central bank governor Adeeb Mayaleh gave Reuters an interview last week at a headquarters building bearing the scars of a car bomb attack earlier in the month. Blinds hung twisted and useless in front of warped window-frames without glass. A palm tree outside had been reduced to a charred skeleton.

The bank chief insisted that the government had plenty of foreign currency available to guarantee imports and enough cash to pay public employees’ wages in advance each month. For how long? Iran and Russia, he said, were about to agree fresh funds.

Deputy Foreign Minister Faisal Mekdad gave an upbeat assessment of the war in an interview – but a Syrian who works nearby told us that the complex housing the ministry had been attacked four times by rebels in the past few months.

UNICEF regional coordinator Youssef Abdul-Jalil estimated that at least three million children inside Syria now needed humanitarian assistance because of the war: “There is a crisis of the children of Syria,” he said. “They are paying a terrible price in their lives, in their surroundings, in their health, in their education and in their lack of protection”.

REALITY INTRUDES

Cars still choke central Damascus and traffic police still issue tickets for speeding and even clamp badly parked vehicles. But armed checkpoints snarl progress to a snail’s pace.

Travel agents still offer flights and holidays. But the road to the city’s airport is considered too dangerous by many and flights are available only to a few, friendly, destinations.

Telephones still work and officials still show up for work in neatly ironed shirts and well-pressed suits – but many scuttle off early to be home before nightfall.

One resident spoke of a distant relative, a Christian from a prosperous family of car dealers, who was kidnapped. Accused of supporting Assad, he was beaten while hanging upside down. His captors then they injected fuel into his veins. Released for a ransom worth over $20,000, the man died a few days later.

While the Syrian elite continue to insist that the military campaign against the rebels is succeeding, aid workers in Aleppo say that the area of the country’s biggest city that is now controlled by the government is very small.

The main north-south highway which connects Aleppo to Damascus via the major cities of Homs and Hama now features some 38 checkpoints, about nine of which are manned by various groups of rebels, NGO workers who have traveled along it recently say.

In the capital, the government says it guarantees a “Square of Security” in the center; some locals joke that rebel gains have shorn it to a rather smaller “Security Triangle”.

Damascus’s walled Old City, a UNESCO World Heritage site and home to the 7th-century Umayyad mosque, retains its beauty. But these days it is eerily empty. Tourists have long gone and the souvenir sellers have all but given up hope of selling anything.

Inside the mosque’s main prayer hall, featuring a shrine said to contain the head of St. John the Baptist, mournful guides tell of how the imam was recently murdered.

At a jewelry shop in the al-Hamidiyeh bazaar, Anas Hallawi, 25, sat looking bored: “People are selling their gold not buying these days,” he said. “Our business thrived on foreign tourists and Syrians buying gold for their brides.

“Now the tourists are gone. And nobody is getting married.”

At the Al-Naranj restaurant in the Christian Quarter, one of Damascus’s finest eateries, diners discussed the relative risks of car bombings versus random mortar attacks and kidnap. Little wonder that so many with the means have left for Lebanon, as life in the capital becomes a kind of ghoulish Russian roulette.

Across the room, a smartly dressed family group celebrated a betrothal with a lavish spread of traditional Syrian food on a table decorated with red roses.

As the strains of the old songs died away and a festive cake was eaten, a fighter jet roared across the sky. Artillery fire thudded in the distance. The family looked upwards through the restaurant’s glass roof, eyes suddenly fearful. (Editing by Alastair Macdonald)

Yet in the neighbourhood of Malki, a tree-lined enclave of central Damascus, a wealthy group of elite, pro-government Syrians still enjoy shopping for imported French cheeses, gourmet hand-made chocolates and iPad minis in the well-stocked, recently built Grand Mall and in nearby boutiques.

Such are the parallel realities of a conflict in which, for all the gains made by rebels and the current chatter about U.S. “red lines” crossed that might ultimately draw in Western might, President Bashar al-Assad is holding his ground in the capital, bulwarked by his own foreign allies and by many Syrians who fear his end could prove fatal for them too. And so life goes on.

In Malki, sprinklers water the manicured lawns outside their blocks of million-dollar apartments. Maids and drivers cater to their every whim and birds sing in the trees. Fuel for their BMWs and electricity for their air-conditioning is plentiful and the well-guarded streets are free of loiterers.

“Look at this display and you feel all is well, life is good and everything is here,” said an elegantly dressed Hiyam Jabri, 50, as she placed her order at the delicatessen counter in the mall’s main supermarket.

Malki residents continue to enjoy material comforts and abundant supplies of imported goods, even as millions of their compatriots subsist on food handouts.

The United Nations World Food Programme estimates it is feeding 2.5 million people inside Syria – a tenth of the population – and a further million who have fled the country, offering them subsistence rations of flour and rice.

“We are trying to keep up with the enormity of the crisis and the impact of the brutality,” the WFP’s deputy regional emergency coordinator Matthew Hollingworth said in the capital.

Most of those whom his staff help “haven’t been displaced once but sometimes twice, three times”. Food is so scarce for those uprooted by the fighting that rations intended to feed a family of five are being shared by three families.

ILLUSIONS

Even in Malki, though, the air of normality is an illusion – as unreal as the oft-repeated assertions of government officials that victory is near and Assad still controls almost all Syria.

Scratch the surface of the illusion and the normality quickly becomes anything but.

Pasted to the lamp-post outside the elegant chocolatier Ghraoui, whose interior boasts award certificates from France, is a wad of black and white fliers. They are printed by families and they mourn sons and husbands killed in the war.

It is a war, however, that seems to be going nowhere fast.

Recent days have shown again the reluctance of the United States and its allies, in the face of evidence Assad’s troops may have crossed President Barack Obama’s “red line” by using chemical weapons, to intervene militarily against him – not least as some rebels have espoused the cause of al Qaeda.

Among the few independent outsiders seeing at first hand the mosaic of opinion and suffering in Syria, many aid workers lament that international discourse has become a monotone debate on supplying weapons, with little push for a negotiated peace.

“We need a political solution for this conflict,” said Marc Lucet, the local emergency coordinator for UNICEF, whose fellow humanitarian workers recount grim tales of hungry refugees found cowering in half-built apartment blocks or idle factories.

The surface serenity of Malki contrasts with what aid groups say is a country splintered by ever shifting frontlines and a fragmenting opposition; many fear violence will spread beyond Syria’s borders and are baffled by the debate in the West over how far to arm rebels, saying this will only make matters worse.

Stressing the need for a political settlement, however, unpalatable and, so far, unattainable, UNICEF’s Lucet said: “The solution is certainly not to give more weapons to either side.”

Attempts to bring Assad down by diplomatic means have failed to break the impasse, even if they do make life less comfortable in Malki.

Inside the Ghraoui chocolate boutique, as everywhere else in Syria, sales are strictly cash only – sanctions have forced international credit card networks to boycott transactions here.

Prices on restaurant menus in local currency, the Syrian pound, have been hastily updated with stickers multiple times – a tell-tale sign of rapid inflation.

At the luxury mall supermarket, Eyad al-Burghol says he is selling fewer imported foodstuffs than before because many wealthy customers have left the country.

FIGHTING TALK

A distant thump of artillery fire serves as a reminder that, just a few kilometres (miles) away, fierce street-to-street battles are being fought between government and rebel forces. Some days, Russian-made MiG fighter jets streak across the sky on their way to bomb insurgent positions.

The abundant security in Malki, residents say, is provided by men who speak the Iranian tongue of Farsi, rather than Syrian Arabic. Tehran has long been Assad’s sponsor against his fellow Arab leaders and the word on the street – impossible to verify – is that this heavily guarded area of town may be home to the Syrian president himself and to his immediate family.

Assad is not seen in public these days and officials refuse to comment on his movements or whereabouts.

Senior Syrian officials try hard to show visiting reporters a picture of normality in which the government is firmly in control. But even the cocoon in which they live and work is starting to be punctured by the facts of war.

Syria’s central bank governor Adeeb Mayaleh gave Reuters an interview last week at a headquarters building bearing the scars of a car bomb attack earlier in the month. Blinds hung twisted and useless in front of warped window-frames without glass. A palm tree outside had been reduced to a charred skeleton.

The bank chief insisted that the government had plenty of foreign currency available to guarantee imports and enough cash to pay public employees’ wages in advance each month. For how long? Iran and Russia, he said, were about to agree fresh funds.

Deputy Foreign Minister Faisal Mekdad gave an upbeat assessment of the war in an interview – but a Syrian who works nearby told us that the complex housing the ministry had been attacked four times by rebels in the past few months.

UNICEF regional coordinator Youssef Abdul-Jalil estimated that at least three million children inside Syria now needed humanitarian assistance because of the war: “There is a crisis of the children of Syria,” he said. “They are paying a terrible price in their lives, in their surroundings, in their health, in their education and in their lack of protection”.

REALITY INTRUDES

Cars still choke central Damascus and traffic police still issue tickets for speeding and even clamp badly parked vehicles. But armed checkpoints snarl progress to a snail’s pace.

Travel agents still offer flights and holidays. But the road to the city’s airport is considered too dangerous by many and flights are available only to a few, friendly, destinations.

Telephones still work and officials still show up for work in neatly ironed shirts and well-pressed suits – but many scuttle off early to be home before nightfall.

One resident spoke of a distant relative, a Christian from a prosperous family of car dealers, who was kidnapped. Accused of supporting Assad, he was beaten while hanging upside down. His captors then they injected fuel into his veins. Released for a ransom worth over $20,000, the man died a few days later.

While the Syrian elite continue to insist that the military campaign against the rebels is succeeding, aid workers in Aleppo say that the area of the country’s biggest city that is now controlled by the government is very small.

The main north-south highway which connects Aleppo to Damascus via the major cities of Homs and Hama now features some 38 checkpoints, about nine of which are manned by various groups of rebels, NGO workers who have travelled along it recently say.

In the capital, the government says it guarantees a “Square of Security” in the centre; some locals joke that rebel gains have shorn it to a rather smaller “Security Triangle”.

Damascus’s walled Old City, a UNESCO World Heritage site and home to the 7th-century Umayyad mosque, retains its beauty. But these days it is eerily empty. Tourists have long gone and the souvenir sellers have all but given up hope of selling anything.

Inside the mosque’s main prayer hall, featuring a shrine said to contain the head of St. John the Baptist, mournful guides tell of how the imam was recently murdered.

At a jewellery shop in the al-Hamidiyeh bazaar, Anas Hallawi, 25, sat looking bored: “People are selling their gold not buying these days,” he said. “Our business thrived on foreign tourists and Syrians buying gold for their brides.

“Now the tourists are gone. And nobody is getting married.”

At the Al-Naranj restaurant in the Christian Quarter, one of Damascus’s finest eateries, diners discussed the relative risks of car bombings versus random mortar attacks and kidnap. Little wonder that so many with the means have left for Lebanon, as life in the capital becomes a kind of ghoulish Russian roulette.

Across the room, a smartly dressed family group celebrated a betrothal with a lavish spread of traditional Syrian food on a table decorated with red roses.

As the strains of the old songs died away and a festive cake was eaten, a fighter jet roared across the sky. Artillery fire thudded in the distance. The family looked upwards through the restaurant’s glass roof, eyes suddenly fearful. (Editing by Alastair Macdonald)

Western powers are alarmed at al Qaeda militants joining a revolt that began two years ago with rallies for democracy and President Bashar al-Assad has seized on that unease; now, 10 days after the Boston Marathon bombings, Syria’s deputy foreign minister told Reuters that U.S. aid to the rebels may backfire.

“Once the fire of terrorism spreads in Syria it will go everywhere in the world,” Faisal Mekdad said in an interview.

Referring to foreign jihadists whose presence has made the United States and European allies wary of arming Syrian rebels, he said: “These chickens will go back to roost where they came from because encouraging terrorism definitely backfires … Once these terrorists succeed in Syria, they will go everywhere.”

Speaking in fluent English at the heavily guarded white, stone-clad complex in central Damascus which houses the Foreign Ministry and prime minister’s offices, Mekdad drew a comparison, made also by Assad himself, with the U.S.-backed Muslim holy war against Soviet occupiers in Afghanistan that fostered al Qaeda.

And asked whether the Boston bombings, blamed on radicalized Muslim immigrants, might change American views of a Syrian conflict that Assad has long painted as a war on terrorism, he replied: “I hope the American administration will remember again the September 11 attack – which we strongly condemned in Syria – and not repeat these policies which encourage terrorism.”

Of 37 nationalities of “terrorist” he said were fighting in Syria, many were European, Mekdad said, including some from Russia’s Chechnya region, ancestral home of the Boston suspects.

Assad’s critics have argued that he himself is paying a price for helping Islamists from Syria and elsewhere – letting them cross into Iraq to fight U.S. forces there; some of those seasoned fighters have now joined the campaign to overthrow him.

Like other senior officials interviewed lately in Damascus, Mekdad projected a breezy confidence in Syrian forces’ ability to win the civil war and denied the rebels were gaining ground.

While condemning support for the mainly Sunni Muslim rebels from Sunni neighbors such as Saudi Arabia, Qatar and Turkey, as well as the Western powers, he said his government enjoyed broad international support, not limited to Russia or to Iran, whose Shi’ite branch of Islam is close to Assad’s Alawite minority.

“I would like to say, with all confidence, that all Syria is controlled by the government but there are places where armed groups have been armed, financed, by certain circles – namely Qatar, Saudi Arabia, France and the UK and other European countries – who due to logistical reasons may control this or that part of Syria,” he said. “But this is moving every day.”

A man living near the Foreign Ministry, who did not want to be identified, told Reuters the complex had been attacked four times in recent months, twice with mortars and twice by men firing machineguns: “We are very frightened,” he said, recalling how he took cover during the last mortar attack 10 days ago.

Asked when the government might win, Mekdad said it was combating “terrorist groups and usually in all those countries which have suffered the plague of terrorism it takes time”.

“Once this support from neighboring and European countries ceases we can easily deal with it,” said Mekdad, who hails from Deraa where protests began in March 2011 after teenagers were jailed for pro-democracy graffiti inspired by the Arab Spring.

He cited apparent success in offensives in Homs and near the western border, where rebels say Lebanese Hezbollah fighters are supporting Syrian troops. Going was also slow, he said, due to “the care practiced by the government with civilians”.

The United Nations has said more than 70,000 people, have been killed and many countries have condemned shelling and aerial bombing by Syrian forces of residential areas.

CHEMICAL “LIE”

Mekdad dismissed Western and Israeli claims that government forces had used chemical weapons, saying it was a “big lie” that Syria was blocking a U.N. investigation into the allegations.

He said Damascus had an initial agreement with the U.N. to look into claims that chemical weapons were used in the Khan al-Assal area near Aleppo but matters were complicated when the U.N. wanted to broaden the probe to include other allegations:

“We are ready to receive immediately the team to investigate the case of Aleppo, to provide all the logistics, help and support and protection and it is the responsibility of the U.N. secretariat if this delegation doesn’t arrive in Syria.”

A former Syrian ambassador to the United Nations, Mekdad accused Britain and France of trying to complicate the U.N. investigation to prevent evidence emerging of rebel use of chemical shells, but did not offer evidence for the allegation.

The United Nations wants inspectors to investigate claims of chemical weapons use in Homs in December; France and Britain say the mission should look into a third alleged case in Damascus.

President Barack Obama has warned Assad that deploying chemical weapons would cross a “red line” that could prompt the United States to intervene in unspecified ways in the conflict – so far, however, Washington has said firm evidence is lacking.

Mekdad denied that Damascus was receiving arms and military support from Russia or fighters from Iran or Hezbollah, Tehran’s Lebanese Shi’ite ally; foreign supporters were providing only humanitarian aid and Syria had ample reserves of its own.

“We are not isolated, we don’t feel isolated,” he said of efforts to impose international sanctions. “Besides Russia, we have China, India, South Africa and we have almost all Latin American countries, and Africa and other Asian countries.”

He warned the EU against helping rebels sell oil from captured fields in the north: “That is a direct theft of Syrian property,” he said. “We are still a government and a strong government. We will stop them,” he added without elaborating.

Mekdad reflected the government’s contention that Syria has been targeted by U.S.-allied Sunni Arab powers because it was part of “an axis of resistance”, along with Iran and Hezbollah, and accused Sunni-led states of secretly supporting Israel: “We believe the main objective in attacking Syria is to weaken it as a major power and to implement Israel’s policies in the region in connivance with the United States and Western interests.”

Asked how he believed the conflict would end, Mekdad sketched two scenarios: “Either we opt for a political solution as projected by President Assad in his speech on January 6 … or the other scenario where the main objective of arming, harboring and smuggling armed groups into Syria will continue.”

“In this case, we have a strong army, we have a strong country, we have determination by the majority of Syrians to combat terrorism. But our preference and the preference of the Syrian leadership is to work for a political settlement.”

Assad offered in that speech in January to negotiate with the opposition if they laid down their arms but he refused dialogue with “gangs recruited abroad” and his foes dismissed the offer out of hand as it did not mention Assad stepping down.

(Editing by Alastair Macdonald)

Speaking at the bank’s headquarters, hit by a car bomb on April 8, Adeeb Mayaleh said: “We are expecting much more support from friendly countries… Yes, financial support from Iran and Russia and it could also be from other friendly countries.

“Discussions are going on. We are in the process of putting the final touches on the subject of financial aid in a clear way,” he told Reuters in an interview, without specifying how much money Iran and Russia would provide.

He said Tehran had already given Syria a $1 billion credit line, more than half of which had been used, and that Russia was now printing Syrian banknotes, formerly supplied by Germany and Austria until the European Union imposed sanctions on Syria.

The central bank chief, whose office features a large Syrian flag and gold-framed portraits of Bashar al-Assad and his father Hafez, said Syria’s foreign reserves were more than sufficient to guarantee essential imports and pay state salaries.

Syria had reserves of $17 billion when the uprising against Assad began just over two years ago. It now had “much more” left than the “incorrect” $4 billion figure which some bankers have quoted, Mayaleh said. He would not give a specific figure.

“If we compare the prices of commodities in Syria to those in neighboring countries, you find they are cheaper in Syria despite the fact that other countries do not have war being waged on them by countries from around the world,” he said.

“This means that reserves are still enough for Syria to stand fast against this conspiracy.”

Mayaleh said the war had caused economic losses of “over 25 billion euros” as well as halting growth, which he said had been running at 6-7 percent a year before the fighting began.

“STOLEN MONEY”

Mayaleh criticized the EU for deciding last week to modify sanctions on Syria to allow oil purchases from rebel forces in control of some eastern oil-producing areas.

“I don’t understand how the European Union can give these terrorist armed groups the right to export oil from Syria to Europe,” he said. “Under what law?…This is money laundering, this is stolen money and these are stolen goods.”

“They (Europeans) are nurturing these militant extremists,” he said. “When they finish their role in Syria … they will go to Europe…The Europeans are trying to bring up a monster who will turn against Europe and its citizens.”

The Syrian conflict has devastated the economy. Electricity is sporadic and Damascus residents have to queue for long hours for bread or petrol, which often run out. Prices of many basic foods and goods rose between 50 and 80 percent last year.

Mayaleh spoke of how the authorities were coping with the economic challenges posed by a war now entering its third year.

“(The opposition) spread rumors that salaries would not be paid for employees and that the state has gone bankrupt,” he said. “Two years have passed in this crisis … and the salaries have always been paid…a month in advance.”

Syria had tackled rumors of forged banknotes in circulation by telling citizens they could exchange any suspect currency at face value in banks for Russian-printed official notes, he said.

Nevertheless, the Syrian pound has slumped to 115 to the dollar in exchange houses from 46 before the uprising.

Mayaleh acknowledged that the pound was weak and that inflation was running at 50 percent a year, but said many other countries in the region, including Lebanon, Iraq and Kuwait, had suffered worse devaluations in times of conflict.

He did not answer a question on whether the government had a specific target for the Syrian pound’s value.

Like other government officials here, Mayaleh questioned why the West was “fostering and protecting” Syrian rebels.

“Aren’t the Europeans afraid of these groups turning on their countries and turning them into a hell, as happened in America?” he said of al Qaeda’s September 11, 2001 attacks.

Downstairs in the central bank building, scaffolding covered walls of an internal courtyard where windows had been blown out by the car bomb. Blinds on the front windows hung twisted. Outside, the blast had shriveled a palm tree to a black husk.

A crane lifted concrete blocks spray-painted with the Syrian flag into position to protect the building from future bombings.

(Editing by Alistair Lyon)

Sheikh Naim Qassem, who predicted a year ago that Assad would not be dislodged from power, said the Syrian leader would win a vote because his supporters understood that their communities’ very existence depended on him.

“I believe that in a year’s time he will stand for the presidency. It will be the people’s choice, and I believe the people will choose him,” said the bearded, turban-wearing Shi’ite cleric, speaking carefully and deliberately.

“The crisis in Syria is prolonged, and the West and the international community have been surprised by the degree of steadfastness and popularity of the regime.”

Citing rifts among Assad’s foes inside and outside Syria, as well as disagreements among world powers over Assad’s future, Qassem said any talk of political solutions was futile for now.

“It will take at least three or four months” for any such solution, he said in a meeting with Reuters editors. “Maybe things will continue until 2014 and the presidential election.”

The two-year-old revolt against Assad is the bloodiest and most protracted of the Arab uprisings. At least 70,000 people have been killed and the violence has stoked tensions across the Middle East between the two main branches of Islam.

Shi’ite Iran and Hezbollah have supported Assad, whose Alawite sect derives from Shi’ite Islam. The mainly Sunni rebels are backed by Sunni powers Saudi Arabia, Qatar and Turkey.

Some Western leaders have long predicted Assad’s imminent demise, but Qassem said he was likely to be re-elected in 2014.

BLACKED-OUT WINDOWS

Wearing brown robes and a white turban, he spoke in a windowless office in Hezbollah’s southern Beirut stronghold.

Journalists were driven to the undisclosed venue in a car with blacked-out windows, a security precaution in violence-prone Lebanon. Three Hezbollah leaders have been assassinated in the past two decades; the group blames Israel for the killings.

Hezbollah, the most accomplished military force in Lebanon, fought Israel to a standstill in a 2006 war and, with its mainly Shi’ite and Christian allies, now holds a majority of cabinet seats in Prime Minister Najib Mikati’s government.

Mikati has tried to insulate his country from the fighting in Syria but Lebanese Shi’ites and Sunnis have both been drawn into the fighting. Hezbollah denies accusations that it has sent its forces into Syria to fight alongside Assad’s troops.

Despite significant and sustained rebel gains, Qassem said the Syrian authorities had scored a string of military successes since insurgents launched attacks in Damascus a few months ago.

“The regime has started winning clearly, point by point,” he said. “And the tensions among the countries supporting the armed (rebel) groups have become clearer.”

Assad’s forces still control central Damascus and large parts of the cities of Homs, Hama and Aleppo to the north. But they have lost swathes of territory in the rural north and most of the eastern towns and cities along the Euphrates River.

In such areas, the Syrian military relies heavily on missiles, artillery and air strikes to pin back rebel advances.

RISK OF DISINTEGRATION

Qassem said Syria only had one viable option: “Either they reach a political solution, in agreement with President Assad… or there can be no alternative regime in Syria,” he said.

Asked whether Syria might fall apart, he replied: “Everything is possible.”

Syria’s population includes Christians, Shi’ites, Alawites, Druze and Ismailis as well as majority Sunnis who include mystical Sufis and secularists as well as pious conservatives.

Qassem portrayed authorities as fighting to protect that diversity in the face of hardline Sunni Islamist rebels. “The regime is defending itself in a battle which it sees as an existential fight, not a struggle for power,” he said.

Assad also faced international opposition from countries trying to break the “resistance project”, a reference to the anti-Israel alliance of Syria, Hezbollah and Iran, he added.

Israel, which diplomats and regional security sources said bombed a convoy in Syria two months ago carrying weapons which may have been destined for Hezbollah, has warned that military action may be needed to stop Iran’s nuclear program.

Israel and Western nations suspect Iran is seeking atomic weapons, a charge it denies. Israel says a “clear and credible military threat” against Iran is needed to halt Tehran’s work.

But Qassem said the United States was reluctant to get dragged into a “costly” conflict with Tehran.

“It would not halt Iran’s peaceful nuclear program but would just delay it for a few years,” he said. “In return America’s interests in the region and those of its allies and Israel would be in great and unpredictable danger.”

Washington’s caution over Iran had echoes in what he said was its equivocal position towards Syria.

Although the United States says it provides only non-lethal aid to the rebels, Qassem said the presence of U.S.-made weapons in Syria proved it had at very least given approval for third countries to ship arms to Assad’s opponents.

But the prolonged fighting had put Washington in a dilemma about whether to “follow the political path” instead, he said.

“America has lost its way over the steps it wants to take in Syria. On the one hand it wants the regime overthrown, and on the other it fears losing control after the regime falls.”

(Additional reporting by Laila Bassam; Writing by Dominic Evans; Editing by Alistair Lyon)

In an interview with Reuters at the presidential palace overlooking Beirut – and just 25 miles from the Syrian-Lebanese border – Suleiman compared Syria’s civil war to a conflagration breaking out next door.

“When there is a fire next to your house, you have to assume that it will spread and you have to try to stop it reaching you,” Suleiman, a former army chief elected president as part of a peace deal to end sectarian clashes in Beirut in 2008.

Suleiman said the presence of a million Syrians alongside an existing Palestinian refugee population meant that a quarter of his tiny Mediterranean nation’s population were now refugees.

“Those numbers are more than the capacity of any country to bear,” he said. “It’s not just a matter of material help and relief – the geographic and demographic capacity is saturated and the problems resulting from this massive number affect us socially, economically and on security.”

Lebanon says it is now hosting 1 million Syrians, one third of them officially registered as refugees fleeing a conflict which has killed 70,000 people, according to the United Nations. The remainder are mostly guest workers and their families.

They live among a nation of 4 million, a quarter of the size of Switzerland, which fought a devastating 1975-1990 civil war and whose sectarian faultlines between Christians, Sunni and Shi’ite Muslims have been exacerbated by the fighting in Syria.

Suleiman called for an international conference to find ways for other countries to absorb the refugees, along the lines of a 1979 Geneva Convention in which Western nations agreed to settle tens of thousands of “boat people” who fled the war in Vietnam.

“The world should think about how to alleviate this burden from Lebanon…. For humanitarian reasons we cannot turn back any refugee who is hungry, wounded, frightened or persecuted,” he said. “But what to do if there is an epidemic or hunger?”

“The Syrian refugees should be distributed (to other countries),” Suleiman said.

DANGER TO LEBANON

Sporadic violence has shaken Lebanon since the Syrian uprising erupted nearly two years ago.

Dozens of people have been killed in street fighting in the northern city of Tripoli between a Sunni Muslim majority – which strongly supports the Syrian rebels battling President Bashar al-Assad – and a minority from Assad’s own Alawite sect.

In October a top security official, whose investigations had implicated Syrian authorities in an alleged plot to set off explosives in Lebanon, was killed by a Beirut car bomb. The assassination triggered Sunni protests across the country.

“There is a danger. We have to keep extinguishing the fire,” said Suleiman, a Maronite Christian. “The fire extinguisher should always be in our hands.”

“There is an ongoing war, but Syria won’t be divided or partitioned. It would be a catastrophe for all the region, but it won’t happen,” the Lebanese leader said, calling for a concerted push by world powers to end the crisis.

“They should find a political solution. It is imperative that they have an international conference because the damage of what is happening will not be confined to Syria, but will hurt all major powers.

“Europe, Russia and the United States and major powers should agree on a solution and should impose it on Arabs and on the Syrians,” he declared.

International divisions have paralyzed U.N. Security Council action to halt the Syrian conflict. Russia and China have blocked three resolutions backed by Western and some Arab states aimed at putting pressure on Assad to stop the bloodshed.

“I am very worried about the situation,” Suleiman said. “We are working to prevent the explosion. Nobody has any excuse to avoid their responsibilities.

“Those who benefit from the existing situation have no right to subject the country to a problem,” he said, apparently referring to Syria’s local partisans including Hezbollah and its allies, who dominate Prime Minister Najib Mikati’s government.

Queried on how long he believed Assad could stay in power, the 64-year-old Suleiman was circumspect. “More than a month,” he said. Asked if it could be years, he said: “Maybe.”

(Writing by Dominic Evans; Editing by Alistair Lyon)

Whole families can be obliterated by air raids that miss their targets. Wealthy Syrians or their children are kidnapped. Some are returned but people tell grim tales of how others are tortured and dumped even when the ransom is paid.

People also tell of prisoners dying under torture or from infected wounds; of looting by the government’s feared shabbiha militias or by rebels fighting to throw out the Assad family.

That is one Damascus. In the other, comprising the central districts of a capital said to be the oldest continually inhabited city in the world, the restaurant menus are full, the wine is cheap and the souks are packed with shoppers.

Employees report for work, children go to school and shops are open, seemingly undeterred by the din and thud of war.

The two cities exist a few miles apart – for now.

For Damascus and its outskirts are rapidly descending into civil war and everything that comes with it – lawlessness, looting, kidnapping and revenge killings. Like the rest of the country, the capital and its suburbs are crawling with armed gangs.

“Anybody can come to you pretending he is security and grab you in broad daylight, put you in a car and speed off and nobody dares interfere or rescue you,” says Lama Zayyat, 42. “A girl in the 7th grade was kidnapped and her father was asked to pay a big ransom. The same happened to other children,” she said.

Nobody really knows who is behind the kidnappings. In one gang, one brother is in charge of abductions while another brother negotiates with the victims. The fear is palpable.

NO SECT HAS BEEN SPARED

The war has not yet reached the heart of the capital, but it is shredding the suburbs. In the past week, government troops backed by air power unleashed fierce barrages on the east of the city in an attempt to flush out rebel groups.

Most of central Damascus is controlled by Assad’s forces, who have erected checkpoints to stop bomb attacks. The insurgents have so far failed to take territory in the center.

Just as loyalist forces seem unable to regain control of the country, there looks to be little chance the rebels can storm the center of Damascus and attack the seat of Assad’s power.

For most of last week the army rained shells on the eastern and southern neighborhoods of Douma, Jobar, Zamalka and Hajar al-Aswad, using units of the elite Republican Guard based on the imposing Qasioun mountain that looms over the city.

The rebels, trying to break through the government’s defense perimeter, were periodically able to overrun roadblocks and some army positions, but at heavy cost.

Jobar and Zamalka are situated near military compounds housing Assad’s forces, while Hajar al-Aswad in the south is one of the gateways into the city, close to Assad’s home and the headquarters of his republican guard and army.

Since the uprising began two years ago, 70,000 people have been killed, 700,000 have been driven from Syria and millions more are displaced, homeless and hungry. No section of society has been spared, whether Christians, Alawites or Sunnis, but in every community it is the poor who are suffering most.

Electricity is sporadic. Hospitals are understaffed as so many doctors – often targeted on suspicion of treating rebel wounded – have fled. Hotels and businesses barely function.

Outside petrol stations and bakeries, queues are long and supplies often run out, meaning people have to come back the next day. Those who can afford it pay double on a thriving black market.

The scale of the suffering can be seen in the ubiquitous obituary notices on the walls of Damascus streets – some announcing the deaths of whole families killed by shelling.

As if oblivious of these private daily tragedies, the government insists the situation is under control, while the rebels say the Assads’ days are numbered.

NOWHERE NEAR OVER

Ordinary Syrians are convinced their ordeal is nowhere near over. While they believe Assad will not be able to reverse the gains of the rebels, they cannot see his enemies prevailing over his superior firepower, and Russian and Iranian support.

“The regime won’t be able to crush the revolution and the rebels won’t be able to bring down the regime,” said leading opposition figure Hassan Abdel-Azim. “The continuation of violence won’t lead to the downfall of the regime, it will lead to the seizure of the country by armed gangs, which will pose a grave danger not only to Syria but to our neighbors”.

“Right now no one is capable of winning,” said a Damascus-based senior Arab envoy. “The crisis will continue if there is no political process. It is deadlock.”

Other diplomats in Damascus say the United States and its allies are getting cold feet about arming the rebels, fearing the growing influence of Islamist radicals such the al-Nusra Front linked to al-Qaeda, banned last year by Washington.

Some remarks recur again and again in Damascus conversations: “Maybe he will stay in power, after all”, and, above all, “Who is the alternative to Assad?”

“At first I thought it was a matter of months. That’s why I came here and stayed to bear witness to the final moments,” said Rana Mardam Beik, a Syrian-American writer. “But it looks like it will be a while so I am thinking of going back to the U.S.”

Loyalty to Assad is partly fed by fear of the alternative. Facing a Sunni-dominated revolt, Syria’s minorities, including Christians and Assad’s own Alawites – an offshoot of Shi’ite Islam – fear they will slaughtered or sidelined if the revolution succeeds and Sunni fundamentalists come to power.

MINORITIES’ FEAR

Many Christians are already trying to emigrate to countries such as Sweden, diplomats say.

“The minorities have every right to be frightened because no one knows what is the alternative. Is it a liberal, civic, pluralistic and democratic state, or is the alternative an Islamist extremist rule that considers the minorities infidels and heretics?” said Abdel Azim.

The government tells the minorities the only alternative to Assad is Islamism. Loyalist brutality against the Sunni majority is in danger of making this a self-fulfilling prophecy, by sucking in jihadi extremists from Libya to Saudi Arabia.

“I am not with the regime but we are sure that if Bashar goes the first people they will come for are the Alawites, then the Shi’ites and then us Christians. They are fanatics,” said George Husheir, 50, an IT engineer.

At the Saint Joseph Church in Bab Touma, the old Christian quarter of Damascus, Christians in their dozens, mostly middle-aged and older couples, gathered for mass on a Friday morning.

“We don’t know what the future holds for us and for this country,” said the priest in his sermon. “The Christians of Syria need to pray more.”

Nabiha, a dentist in her 40s, said: “Bashar is a Muslim president but he is not a fanatic. He gave us everything. Why shouldn’t we love him. Look at us here in our church, we pray, we mark our religious rituals freely, we do what we like and nobody interferes with us.”

The fear of the Christians extends to the Alawite and minority Shi’ites. “If Bashar goes we definitely have to leave too because the Sufianis (Sunni Salafis) are coming and they are filled with a sectarian revenge against us,” said one wealthy middle class Shi’ite.

COSTLY WAR

Alongside sectarian hatreds, class and tribal acrimony is also surfacing. Wealthy Sunnis in the capital are already in a panic about poor Sunni Islamists from rural areas descending on their neighborhoods.

“When they come they will eat us alive”, one rich Sunni resident of Damascus said, repeating what a cab driver dropping him in the posh Abou Roummaneh district told him: “Looting these houses will be allowed.”

Yet many activists feel protective of the revolution, despite the brutal behavior of some Islamist rebels.

“People talk about chaos and anarchy after Assad, but so what if we have two years of a messy transition? That is better than to endure another 30 years of this rule,” said Rana Darwaza, 40, a Sunni academic in Damascus.

Prominent human rights lawyer Anwar al-Bunni said the suffering is a price that had to be paid. “Those on the ground will continue to fight even with their bare hands”, he said.

He said there are thousands of prisoners in horrific conditions in Assad’s jails. Some suffocate in overcrowded cells while others die under torture or from untreated wounds. “They don’t give them medical treatment or pain killers or antibiotics. They leave them to die,” he said.

Close watchers of Syria predict that if there is no settlement in a few months the conflict could go on for years. Yet the economy is collapsing, leaving the government to rely on dwindling foreign reserves, private assets and Iranian funds.

There is no tourism, no oil revenue, and 70 percent of businesses have left Syria, said analyst Nabil Samman. “We are heading for destruction, the future is dark”, he added.

Added to the religious animosity between the Sunni majority and the Alawite minority who took control when Hafez al-Assad seized power in 1970 are social and economic grievances fuelled by the predatory practices of the elite.

This resentment extends to young middle class Syrians who feel they have lost a way of life and that their country is being used by regional powers for proxy war.

“All the regional point-scoring is taking place in Syria. We have Libyan fighters and Saudis fighting for freedom in Syria, why are they here? Let them go and demand freedom in their own countries?,” said banker Hani Hamaui, 29.

Two years into the uprising, Assad is hanging on. Some will always back him and others want him dead. But many just want an end to the fighting. They may have to wait for some time.

Signs daubed on the gates to the city by Assad’s troops are a reminder that the battle for Damascus will be costly. “Either Assad, or we will set the country ablaze”, they say.

(Editing by Giles Elgood)

Two years after the revolution that toppled Hosni Mubarak, Egypt, the epicenter of the upheavals reshaping the Arab world, is once again dicing with its future.

Writing on Twitter this week as protesters clashed with police in the Suez Canal city of Port Said, Ahmed Said of the liberal opposition Free Egyptians Party asked: “Will the army intervene on the side of the Egyptian people or not?”

General Abdel Fattah al-Sisi, the army chief and defense minister, duly warned on Tuesday that chaos in the streets and political deadlock could lead to “the collapse of the state”.

For now at least, this looks more like a shot across the bows of Egypt’s bickering politicians than a bid for power, most observers believe. Senior officers told Reuters the army’s main concern was to safeguard national security and contain the violence that has enveloped major cities, including three along the strategically and economically important Suez Canal.

The instability has provoked unease in Western capitals, where officials worry about the direction of a powerful regional player that has a peace deal with Israel. The United States, which gives Egypt $1.3 billion in military aid each year, called on Egyptian leaders to make clear violence was not acceptable.

The violence is rooted in popular rage at the failure of Mursi to deliver security, stability, jobs and food and enmeshed with polarized and poorly focused political agendas.

Since the 2011 revolution, the Islamist Muslim Brotherhood, which Mubarak spent his 30-year rule suppressing, has won two referendums, two parliamentary elections and a presidential vote. But, as the renewed turmoil of the past week demonstrates, Egyptians have still to reach anything like consensus on who should govern them, and under what rules.

Power ebbs and flows between a presidency that is beholden to the Brotherhood, a poorly coordinated opposition coalition and the army, the pillar of the old order.

Meanwhile, the Islamist-dominated parliament, dissolved last year by the constitutional court, is in abeyance pending new elections and almost nothing has been done to rebuild crucial institutions such as the police and the judiciary.

Mursi added fuel to the flames late last year by taking over legislative powers until a new parliament is elected and rushing through an Islamist-tinged constitution, endorsed in a referendum where the Brotherhood outmaneuvered an opposition that could not decide whether to boycott or contest the vote.

ARMY’S CENTRAL ROLE

The opposition spurned Mursi’s offer of dialogue this week, calling instead for a national unity government and a rewriting of the constitution – in effect, for Mursi to step aside.

“I think the lack of trust is so deep-seated that even if the Brotherhood made good faith gestures I don’t know if the opposition could believe them or take them at face value,” said Shadi Hamid, director of research at the Brookings Doha Center.

“I think in some ways the well is so poisoned we are talking about a very rough transition (ahead) … There isn’t any way to undo the damage that has been done,” he added.

The impasse has led to fears in some quarters that the army could step in. Arguing against such a move is the fact that the Brotherhood-backed constitution enshrines the military’s political influence and economic interests, meaning army commanders have little to gain by taking over the day to day running of Egypt.

If discontent against Mursi broadens into another popular uprising, the army’s leadership would find itself center stage. “It all depends on how quickly civilians can get organized,” said analyst Safwat Zayaat.

Shortly after his election in June, Mursi managed to sideline the military council that effectively took over after Mubarak. Yet the army had a role this week in convincing the president to impose a month-long state of emergency on three Suez Canal cities, Zayaat said, through the National Defence Council on which commanders sit alongside civilian leaders.

Military analysts say that after six decades in power the U.S-aligned generals now heading the army have no wish to see their image tarnished by a new putsch, especially since whoever rules Egypt will soon have to take unpopular economic decisions.

NO SIGN OF STABILITY

A desperately-needed $4.8 billion loan from the IMF is not yet in place, mainly because the aid package would involve cuts to subsidies that eat up a quarter of the budget, further stoking food and fuel-price inflation.

On the streets, there is no sign of the stability the country badly needs to attract investment, tempt back the tourists who provide around a quarter of all jobs, and create opportunities for its overwhelmingly young population.

Simon Kitchen, strategist for investment bank EFG-Hermes, said the post-revolution government inherited a weak economy with a high deficit and big fuel subsidy bill, and that the political standoff between Mursi and the opposition was preventing them from implementing difficult decisions.

“The country is being kept afloat by deposits from Qatar, but the funds are a stop-gap measure to stop the bleeding rather than get money flowing into the country,” Kitchen said.

“What the private sector wants to see is not just an IMF agreement but the government demonstrating it has a clear and consistent policy and then operating effectively, transparently and predictably for six to 12 months. Only then will you see a turnaround in the private sector.”

Hamid at Brookings doubts a new consensus to restore stability and unlock economic reform is possible in such a combustible climate.

“I think the big thing is going to be the IMF loan to try to stabilize the economic situation. The even bigger thing is the parliamentary elections. It would be a disaster if the opposition boycotts because that would mean the normalization of street politics over institutional politics.”

MURSI SITTING TIGHT

Like most observers, Hamid doubts the protesters will be able to force out a democratically elected president who has only been in power for seven months and has inherited a country that lived under 30 years of autocracy and mismanagement.

“Knowing Mursi, even knowing him personally, he won’t resign under any circumstance and the Brotherhood will never allow that.

“I also don’t think it sets a good precedent for elected leaders to resign in the face of popular pressure. That kind of precedent will be detrimental to the institutionalization of politics”, Hamid said.

Opposition conditions for re-entering the political process, furthermore, including holding an early presidential vote and rewriting the constitution, were not realistic, he said.

“You cannot really undo what has already happened. There can be re-negotiations over some controversial articles (of the constitution) but what they are proposing is to start over.”

The mistrust goes deeper than demands by the opposition. Mursi and his Brotherhood affiliates believe the liberal opposition is out to destroy them. They see this as an existential battle and that the opposition is acting outside the democratic rules of the game.

Yet if government and opposition cannot reach a consensus, they could take Egypt over the brink from which the army has just warned them to step back.

As the power struggle unfolds, in Tahrir Square, cradle of the revolution, most of the crowd camping are young, unemployed Egyptians who are angry and disillusioned.

Mohammed al-Masry, 27, a sailor, who hasn’t been able to find a regular job said: “We want to change the regime. We want to change Mursi … Prices of food are increasing, unemployment is increasing and so is state violence against protesters.”

“Mursi has done nothing except serve the Muslim Brotherhood. He is the president of the Ikhwan (Brothers) and not the president of Egypt,” said Ahmed Ibrahim, 19.

Film director Abdullah al-Shamshari, 28, added: “Mursi should break free from the Muslim Brotherhood grip and act as the president of all Egyptians. He is torn between the Brotherhood which lifted him into power and the ordinary people who have legitimate demands.”

(Additional reporting by Marwa Awad; editing by Janet McBride)

Two years after the revolution that toppled Hosni Mubarak,
Egypt, the epicentre of the upheavals reshaping the Arab world,
is once again dicing with its future.

Writing on Twitter this week as protesters clashed with
police in the Suez Canal city of Port Said, Ahmed Said of the
liberal opposition Free Egyptians Party asked: “Will the army
intervene on the side of the Egyptian people or not?”

General Abdel Fattah al-Sisi, the army chief and defence
minister, duly warned on Tuesday that chaos in the streets and
political deadlock could lead to “the collapse of the state”.

For now at least, this looks more like a shot across the
bows of Egypt’s bickering politicians than a bid for power, most
observers believe. Senior officers told Reuters the army’s main
concern was to safeguard national security and contain the
violence that has enveloped major cities, including three along
the strategically and economically important Suez Canal.

The instability has provoked unease in Western capitals,
where officials worry about the direction of a powerful regional
player that has a peace deal with Israel. The United States,
which gives Egypt $1.3 billion in military aid each year, called
on Egyptian leaders to make clear violence was not acceptable.

The violence is rooted in popular rage at the failure of
Mursi to deliver security, stability, jobs and food and enmeshed
with polarised and poorly focused political agendas.

Since the 2011 revolution, the Islamist Muslim Brotherhood,
which Mubarak spent his 30-year rule suppressing, has won two
referendums, two parliamentary elections and a presidential
vote. But, as the renewed turmoil of the past week demonstrates,
Egyptians have still to reach anything like consensus on who
should govern them, and under what rules.

Power ebbs and flows between a presidency that is beholden
to the Brotherhood, a poorly coordinated opposition coalition
and the army, the pillar of the old order.

Meanwhile, the Islamist-dominated parliament, dissolved last
year by the constitutional court, is in abeyance pending new
elections and almost nothing has been done to rebuild crucial
institutions such as the police and the judiciary.

Mursi added fuel to the flames late last year by taking over
legislative powers until a new parliament is elected and rushing
through an Islamist-tinged constitution, endorsed in a
referendum where the Brotherhood outmanoeuvred an opposition
that could not decide whether to boycott or contest the vote.

ARMY’S CENTRAL ROLE

The opposition spurned Mursi’s offer of dialogue this week,
calling instead for a national unity government and a rewriting
of the constitution – in effect, for Mursi to step aside.

“I think the lack of trust is so deep-seated that even if
the Brotherhood made good faith gestures I don’t know if the
opposition could believe them or take them at face value,” said
Shadi Hamid, director of research at the Brookings Doha Center.

“I think in some ways the well is so poisoned we are talking
about a very rough transition (ahead) … There isn’t any way to
undo the damage that has been done,” he added.

The impasse has led to fears in some quarters that the army
could step in. Arguing against such a move is the fact that the
Brotherhood-backed constitution enshrines the military’s
political influence and economic interests, meaning army
commanders have little to gain by taking over the day to day
running of Egypt.

If discontent against Mursi broadens into another popular
uprising, the army’s leadership would find itself centre stage.
“It all depends on how quickly civilians can get organised,”
said analyst Safwat Zayaat.

Shortly after his election in June, Mursi managed to
sideline the military council that effectively took over after
Mubarak. Yet the army had a role this week in convincing the
president to impose a month-long state of emergency on three
Suez Canal cities, Zayaat said, through the National Defence
Council on which commanders sit alongside civilian leaders.

Military analysts say that after six decades in power the
U.S-aligned generals now heading the army have no wish to see
their image tarnished by a new putsch, especially since whoever
rules Egypt will soon have to take unpopular economic decisions.

NO SIGN OF STABILITY

A desperately-needed $4.8 billion loan from the IMF is not
yet in place, mainly because the aid package would involve cuts
to subsidies that eat up a quarter of the budget, further
stoking food and fuel-price inflation.

On the streets, there is no sign of the stability the
country badly needs to attract investment, tempt back the
tourists who provide around a quarter of all jobs, and create
opportunities for its overwhelmingly young population.

Simon Kitchen, strategist for investment bank EFG-Hermes,
said the post-revolution government inherited a weak economy
with a high deficit and big fuel subsidy bill, and that the
political standoff between Mursi and the opposition was
preventing them from implementing difficult decisions.

“The country is being kept afloat by deposits from
Qatar, but the funds are a stop-gap measure to stop the bleeding
rather than get money flowing into the country,” Kitchen said.

“What the private sector wants to see is not just an IMF
agreement but the government demonstrating it has a clear and
consistent policy and then operating effectively, transparently
and predictably for six to 12 months. Only then will you see a
turnaround in the private sector.”

Hamid at Brookings doubts a new consensus to restore
stability and unlock economic reform is possible in such a
combustible climate.

“I think the big thing is going to be the IMF loan to try to
stabilise the economic situation. The even bigger thing is the
parliamentary elections. It would be a disaster if the
opposition boycotts because that would mean the normalisation of
street politics over institutional politics.”

MURSI SITTING TIGHT

Like most observers, Hamid doubts the protesters will be
able to force out a democratically elected president who has
only been in power for seven months and has inherited a country
that lived under 30 years of autocracy and mismanagement.

“Knowing Mursi, even knowing him personally, he won’t resign
under any circumstance and the Brotherhood will never allow
that.

“I also don’t think it sets a good precedent for elected
leaders to resign in the face of popular pressure. That kind of
precedent will be detrimental to the institutionalisation of
politics”, Hamid said.

Opposition conditions for re-entering the political process,
furthermore, including holding an early presidential vote and
rewriting the constitution, were not realistic, he said.

“You cannot really undo what has already happened. There can
be re-negotiations over some controversial articles (of the
constitution) but what they are proposing is to start over.”

The mistrust goes deeper than demands by the opposition.
Mursi and his Brotherhood affiliates believe the liberal
opposition is out to destroy them. They see this as an
existential battle and that the opposition is acting outside the
democratic rules of the game.

Yet if government and opposition cannot reach a consensus,
they could take Egypt over the brink from which the army has
just warned them to step back.

As the power struggle unfolds, in Tahrir Square, cradle of
the revolution, most of the crowd camping are young, unemployed
Egyptians who are angry and disillusioned.

Mohammed al-Masry, 27, a sailor, who hasn’t been able to
find a regular job said: “We want to change the regime. We want
to change Mursi … Prices of food are increasing, unemployment
is increasing and so is state violence against protesters.”

“Mursi has done nothing except serve the Muslim Brotherhood.
He is the president of the Ikhwan (Brothers) and not the
president of Egypt,” said Ahmed Ibrahim, 19.

Film director Abdullah al-Shamshari, 28, added: “Mursi
should break free from the Muslim Brotherhood grip and act as
the president of all Egyptians. He is torn between the
Brotherhood which lifted him into power and the ordinary people
who have legitimate demands.”