The exit of Egyptian President Hosni Mubarak has begun to cast its shadow on Egypt's ties with Israel, with Cairo on Thursday refusing to compensate Tel Aviv for the losses it suffered due to an explosion, a day earlier, of a gas pipeline close to its border.

In an interview that appeared in the Egyptian daily Al Shorouk, Petroleum Minister Abdullah Ghorab said compensation to Israel and Jordan, which consume Egyptian gas, was not obligatory as the explosions took place during a “state of emergency”.

On Wednesday, supplies of gas from Egypt to Israel and Jordan were disrupted because of an explosion at the Sabil terminal in the Sinai Peninsula, around 50 kilometres from the border with Israel. The supply of gas was then stopped from the main terminal in Port Said to contain the flames at the blast site, which soared to a height of 20 meters.

Adding grist to the anti-Israeli sentiment, hundreds of students rallied in front of the Israeli Embassy in Cairo on Wednesday, calling for the termination of the gas agreement and the scrapping of diplomatic ties. Earlier, Egypt's Prime Minister Essam Sharaf said his military-backed government would review its gas contracts with other states, including Israel and Jordan. In Egypt, it is widely perceived that gas is being exported to the two countries at much below the market price, resulting in an estimated net revenue loss of $3 billion-$4 billion.

During the student demonstration, activists called for another march on May 15 to mark the Palestinian Nakba (Catastrophe), the mass of expulsions of Palestians from their land by pro-Israeli militias in 1948.

Analysts say a possible rapprochement between post-Mubarak Egypt and Iran, of which there are several signs, is also expected to sour ties between Egypt and Israel. On Wednesday, Egyptian Foreign Minister Nabil al-Arabi said he would meet his Iranian counterpart next month and discuss ways to thaw the relationship, which has been practically frozen for the last 30 years after Egypt signed a peace treaty with Israel.

“I will meet with [Iranian Foreign Minister] Ali Akbar Salehi in Indonesia on the sidelines of the Non-Aligned summit next month and discuss the next steps in our relationship,” Mr. Arabi was quoted as saying.

On Saturday, Mr. Salehi was optimistic that Egypt would take a “courageous step” to restore relations with his country.

Hoping to substantiate its ties, Iran is considering extending the proposed Arab gas pipeline to Egypt.

“Tehran, Baghdad and Damascus have held talks on the establishment of a 2,000-kilometre gas line from Iran to Syria,” IRNA quoted Sufian Alao, a Syrian official, as saying on Wednesday.

“The pipeline in question will meet the needed gas in Iraq and Syria and will facilitate Iranian gas exports to Turkey, Jordan, Lebanon and Egypt through the Arab Gas Pipeline,” he added.

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