Egypt announced plans to develop the Sinai region bordering Israel on Monday after Israeli officials blamed Egypt's loosening grip on the area for the killing of eight Israelis by terrorists, inflaming tensions between the two neighbors.
Five Egyptian security personnel were killed as Israel pursued the terrorists following the attack near Eilat in southern Israel on Thursday. Egypt claims Israel's actions breached the 1979 peace treaty between the two nations.
Cairo has struggled to assert its grip on the isolated desert peninsula, especially after President Hosni Mubarak was deposed in February, leaving a power vacuum that was quickly exploited by extremist elements in Sinai.
Egyptian officials are said to be looking for a pretext to modify or nullify the treaty, which they consider disadvantageous. Some security analysts suggest the new government in Cairo may have intentionally allowed the situation in Sinai to deteriorate in order to justify the gradual re-militarization of the Sinai by Egypt's armed forces.
Israel expressed its regret for the Egyptian deaths launched an investigating the incident, but Egyptian leaders have proven unwilling to accept anything short of self-castigation from the Jewish state.
Several leading Egyptian politicians, including former Arab League head Amr Mousa and other candidates for Egypt's presidency have called for Cairo's caretaker junta to recall Egypt's ambassador from Israel, to deploy more troops in Sinai, and try the Israelis responsible for the killings in abstentia.
"Egypt after the January revolution is not like Egypt before. The corrupt, oppressive and compliant regime is gone for good," they said in a statement.
They described Mubarak's government as "a strategic asset to Israel" that "has been replaced by a strong popular will that does not know weakness or complicity and understands well how to achieve retribution for the blood of the martyrs."
In response to last Thursday's attacks - and perhaps because of pressures in Egypt to re-militarizing the Sinai - IDF chief of staff Benny Gantz on Wednesday announced Israel would be beefing up its military presence along Israel's border with Egypt.
The anti-Israel hostility that emerged after the incident has highlighted the dilemma faced by Egypt's junta, caught between pressure to preserve the 1979 peace treaty with Israel and virulent popular hostility to the Jewish state.
Egypt's army is trying to keep a lid on domestic tensions as the world's most populous Arab nation prepares for elections later in the year as part of a promised transition to democratic civilian rule after Mubarak's removal.
To that end, the top army officers in Cairo have broken with Mubarak's low-key approach and Egypt's condemnation of Israel included a demand for a change in relations between the two US allies.
But away from the lime-light there have been signs Egypt and Israel are both trying to ease away from the first potential diplomatic crisis since Mubarak's overthrow.