By Edmund Blair and Yasmine Saleh
CAIRO (Reuters) - Egypt's Islamist-led parliament reconvened on Tuesday after being summoned by new President Mohamed Mursi in an open challenge to the generals who dissolved it last month.
The assembly, dominated by Mursi's Muslim Brotherhood and allies, was dismissed by the army in line with a court ruling issued days before Mursi's election. Mursi took office on June 30 ago, the first civilian leader after six decades of military men in power, and recalled the parliament in a decree on Sunday.
Shortly before parliament speaker Saad al-Katatni opened the session, the United States urged all sides to engage in talks to safeguard the political transition in Egypt, a close U.S. ally in the three decades under ousted Hosni Mubarak's rule.
"I invited you to convene in accordance with the decree issued by the president," said Katatni who, like Mursi, hails from the Brotherhood. "I would like to confirm that the presidential decree does not violate the court order."
The dispute is part of a broader power struggle which could take years to play out. It pits the Brotherhood, which was repressed by Mubarak and his military predecessors, against the generals seeking to keep their privileges and status, alongside a wider establishment still filled with Mubarak-era officials.
Liberal groups - heavily outnumbered by Islamists in parliament - are also alarmed. Many boycotted Tuesday's session, saying Mursi's decree defied the courts. A parliamentary official said attendance was about 70 percent of the 508-seat lower house, roughly equal to the Islamist majority.
The liberal Free Egyptians party, which stayed away, called Mursi's move "a blatant violation of the principle of separation of powers" and an attack on the judiciary.
Parliament was elected in a six-week vote that ended in January, under a complex procedure which the Supreme Constitutional Court ruled on June 14 was unconstitutional, declaring the lower house void. The then-ruling military said that meant parliament had to be dissolved, but Mursi's backers say it should be allowed to work until early elections are held.
For now, Mursi with his election mandate may have an early advantage in the first skirmish with the army. But he cannot claim victory in a fight being contested in courts and with both sides seeking to exploit deep political divisions in the nation of 82 million.
"I have the impression that the elected president has the upper hand," said political analyst Hassan Nafaa.
"It is a dangerous game. I hope there will be some political solution to that crisis by direct negotiations between the president and the Supreme Council of the Armed Forces," said Nafaa, a professor of political science who was an active opponent of Mubarak's rule and backed protests that ousted him.
Aside from rival statements issued by the Brotherhood and the army, there has been no public sign of a clash. Mursi and Field Marshal Hussein Tantawi, who ruled the country in the interim after Mubarak resigned, have appeared relaxed together at public events before and since the president's decree.
ROOM TO MANOEUVRE
In an air force graduation ceremony shown on live television on Tuesday, two aircraft left a vapor trail shaped like a heart in the sky for the dignitaries, prompting a big smile from Chief of Staff Sami Enan and a hesitant smirk from Mursi, who was seated between him and Tantawi.
How the dust settles in Egypt will have repercussions across a region where Islamists, many inspired by the Brotherhood, have emerged as powerful actors in revolts that toppled autocrats in Tunisia and Libya, and a rebellion still being fought in Syria.
Generals sought to rein in the new president's powers in a last-minute election day decree. But short of staging a coup - a move seen as highly unlikely and certain to unite Islamists and their rivals - Egypt's army has limited room to maneuver since handing executive office to Mursi.
The military is now reliant on favorable rulings from judges - known to have a strong anti-Islamist streak, but, like the rest of Egypt, also divided.
Generals can maintain influence by negotiating quietly with the Brotherhood behind the scenes. They met regularly during the transition, although Western diplomats say relations became increasingly tense, particularly when the Brotherhood made a U-turn on an earlier pledge not to seek the presidency. Dialogue is clearly the tactic urged by the West and liberal politicians.
"The national conscience demands an immediate meeting between the president, representatives of the legislature and the military council to reach a political and legal solution to avoid the country exploding," reformist politician Mohamed ElBaradei wrote on Facebook as parliament met.
U.S. Secretary of State Hillary Clinton said: "We strongly urge dialogue and concerted effort on the part of all to try to deal with the problems that are understandable but have to be resolved in order to avoid any kind of difficulties that could derail the transition that is going on."
Western states, long wary of political Islam but now seeking to engage with the Brotherhood, have watched Egypt's turmoil closely, in particular the United States, concerned about the stability of the first Arab nation to make peace with Israel.
Clinton, whose country gives Egypt's military $1.3 billion in aid each year, meets Mursi when she visits Egypt on July 14.
DEFENDING ITS ACTION
On Monday the army defended its dissolution of parliament, saying it was necessary to carry out the court ruling. In an apparent swipe at the president, it said it was confident "all state institutions" would respect the constitution and the law.
Nevertheless, the army did not take any steps to prevent lawmakers from entering parliament.
The supreme court said on Monday its decisions were final and binding, and it would hear challenges to Mursi's decree.
More battles lie ahead, such as a debate over the writing of a new constitution. The army, in its decree last month, gave itself the right to form a new constitution-writing body if the one picked by parliament hits an obstacle. An earlier constituent assembly was dissolved by a court.
Dozens of legal cases are now before a range of courts over issues including Mursi's decree, the validity of the constitutional assembly and the election of the upper house.
The Brotherhood says it is seeking a way to comply with the supreme court's ruling without dissolving parliament.
Parliament voted to send a list of members to a court of appeal to determine whether or not they should continue to sit in the chamber, setting the stage for a new legal battle.
On the street, Egyptians are divided about Mursi's move. Many hanker for stability after months of turbulence and some are surprised and frustrated that he raised the stakes so soon.
"He should have known better than to take such wild decisions at the beginning. If he wanted to take such an action, he could at least have waited until he consolidated his power and had done things to gain popularity," said Mostafa Mohamed, a 60-year-old pensioner, speaking outside to parliament.
(Reporting by Dina Zayed, Omar Fahmy and Marwa Awad; Writing by Edmund Blair; Editing by Peter Graff)