CAIRO (Reuters) - Egypt's deputy prime minister will propose a way out of a bloody confrontation between the security forces and deposed President Mohamed Mursi's Muslim Brotherhood when the cabinet discusses the crisis on Sunday.
But his ideas seemed to run counter to a suggestion by the prime minister to dissolve the Islamist organisation, the target of a crackdown by the army-backed government last week.
The authorities declared a state of emergency and killed hundreds of people in raids on Wednesday on two protest camps set up in Cairo to demand Mursi's reinstatement.
The capital's frenetic streets, unusually empty in the past few days, were returning to normal on Sunday, although the army kept several big squares closed and enforced a curfew overnight.
At night, soldiers standing by armoured personnel carriers man checkpoints and vigilantes inspect cars for weapons.
Banks and the stock market reopened for the first time since Wednesday's carnage, and shares plunged 2.5 percent <.egx30>.
"As long as we have bloodshed on the streets, it takes away any reason for foreign and regional investors to buy in Egypt," said Amer Khan, director at Shuaa Asset Management in Dubai.
The initiative by Deputy Prime Minister Ziad Bahaa el-Din, a liberal, calls for an immediate end to the state of emergency, political participation for all parties and guarantees of human rights, including the right to free assembly.
The Brotherhood has said it will keep up mass protests until Mursi, toppled by the army on July 3 after huge demonstrations against him, is freed from jail and returned to office.
It was not clear how much support Bahaa el-Din's proposal, seen by Reuters, could gain among the new leaders of a deeply polarised Arab republic experiencing the worst bout of bloodshed and internecine conflict in its six-decade history.
Blaming a defiant Brotherhood for the bloodletting, Prime Minister Hazem el-Beblawi has proposed banning the 85-year-old movement and effectively forcing it underground.
"There will be no reconciliation with those whose hands have been stained with blood and who turned weapons against the state and its institutions," Beblawi told reporters on Saturday.
Bahaa el-Din stayed in office even after a leading fellow-liberal, Deputy President Mohamed ElBaradei, resigned over the violent break-up of the protest camps in Cairo.
His proposal does not address Mursi's fate or specifically call for an amnesty for detained leaders of the Brotherhood.
The Islamist group, which won five successive votes held in Egypt after President Hosni Mubarak fell in 2011, now faces the prospect of political elimination by army-backed rulers who say the most populous Arab nation is at war with "terrorism".
During Mursi's year in power, accusations of incompetence and attempts to monopolise government tarnished the reputation the Brotherhood had acquired for social work and upholding Islamic principles in 30 years of opposition to Mubarak.
Brotherhood leaders accuse the military of deliberately sabotaging their time in office and plotting their demise.
More than 700 people have died, most of them backers of Mursi, in four days of violence. That has earned Egypt stiff condemnation from Western nations, uncomfortable with Islamist rule but also with the overthrow of a freely elected government.
European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso urged all sides to show restraint and prevent further violence, saying the EU would urgently review its relations with Egypt and act accordingly.
The crackdown has, however, drawn messages of support from wealthy Arab allies such as Saudi Arabia, which have long feared the spread of Brotherhood ideology to the Gulf monarchies.
The United States has delayed delivery of four F-16 fighters to Egypt and cancelled a joint military exercise to rebuke the army for its actions, but it has not halted the $1.55 billion in mostly military aid that it gives Cairo every year.
Interim Foreign Minister Nabil Fahmy sought to pre-empt any attempt by the West to pressure Egypt by cutting financial aid by announcing he would scrutinise all foreign assistance.
"By reviewing aid I want to determine what is useful and what is not and what aid is being used to pressure Egypt and whether this aid has good intentions and credibility. We will proceed based on our findings," he told reporters on Sunday.
"We are not looking to replace one friend with another but we will look out to the world and continue to establish relations with other countries so we have options," he said.
"The relation between Egypt and the U.S. has been there for a long time. It has been through ups and downs in the past. We hope things will go back to normal promptly," Fahmy said.
The Foreign Ministry, as part of a push to disseminate the state's narrative of events, also distributed a pack of photos showing what it said were Muslim Brotherhood members carrying clubs and firearms - and in one picture a black al Qaeda flag.
The Brotherhood denies links to the global militant network.
On Saturday, Mursi supporters exchanged fire with security forces in a central Cairo mosque where scores of protesters had sought refuge from confrontations with police the day before.
Police cleared the building and made arrests, with onlookers cheering them on and harassing foreign reporters at the scene.
"We as Egyptians feel deep bitterness towards coverage of the events in Egypt," presidential political adviser Mostafa Hegazy said, accusing Western media of ignoring attacks on police and the destruction of churches blamed on Islamists.
At least 173 people were killed on Friday during a "Day of Rage" called by the Brotherhood two days after police destroyed its protest camps. Police have since arrested more than 1,000 Brotherhood "elements". The state news agency said 250 faced possible charges of murder, attempted murder or terrorism.
The Brotherhood has called for daily street protests this week, but there were no reports of trouble on Sunday morning. (Reporting by Cairo bureau and Paul Taylor in Paris; Editing by Janet Lawrence)