CAIRO (Reuters) - Egyptian President Hosni Mubarak offered talks on sweeping reforms with opponents on Monday, indicating that massive pressure from street protesters, Western allies and his own army are ending his 30 years of one-man rule.
After a week of unprecedented rallies against the poverty, corruption and oppression under the 82-year-old military-backed leader, newly appointed Vice President Omar Suleiman appeared on state television to say Mubarak had asked him to begin dialogue with all political forces on constitutional and other reforms.
It seems unlikely Mubarak could preside for long within any new system that brought free elections to the most populous Arab state. After the fall of Tunisia's veteran strongman two weeks ago, the shift will send a shockwave throughout the Middle East.
"I think it's the beginning of the end," said analyst Omar Ashour, speaking on Al Jazeera television.
Before Suleiman spoke, the armed forces command had declared the demonstrators' demands "legitimate" and said it would not fire on peaceful protesters who called for a million people to take to the streets on Tuesday to push Mubarak out altogether.
At the same time, the United States, which has backed him as a bulwark against radical Islam and a friend to Israel with billions of dollars in military aid, said bluntly that he must revoke the emergency law under which he has ruled since 1981 and hold free elections. Washington has sent an envoy, former ambassador to Cairo Frank Wisner, to meet Egyptian leaders.
High on the agenda of Western powers, which have been caught off guard by the speed with which Mubarak's police state has been pushed back by unarmed citizens, will be trying to prevent a full takeover by anti-Western Islamists.
Israeli Prime Minister Benjamin Netanyahu, for whom Egypt has been one of very few friendly neighbours, said he feared that the Muslim Brotherhood, a banned mass movement, could turn Egypt into the kind of theocracy installed in Iran in 1979.
The Brotherhood itself, which has taken a back seat to young, urban dissidents in the past week, has said it would seek a pluralist democracy. It has also called for mass protests.
Suleiman, an intelligence chief, was named by Mubarak on Saturday as his first ever vice president, a move that gave a first hint that he was thinking about an eventual handover.
Appearing on television, Suleiman said: "The president has asked me today to immediately hold contacts with the political forces to start a dialogue about all raised issues that also involve constitutional and legislative reforms in a form that will result in clear proposed amendments and a specific timetable for its implementation."
Earlier, Mubarak had brought in a new government line-up with a promise of economic revival -- but that failed to impress tens of thousands of people demonstrating across the country in defiance of a night-time curfew and unmolested by the troops.
The army has seemed to be weighing whether to shift its loyalties. The military command may be keener to preserve a 60-year-old system of army-backed government than to prolong the personal rule of Mubarak.
"The armed forces will not resort to use of force against our great people," it said, though it would stop looters.
"Your armed forces, who are aware of the legitimacy of your demands and are keen to assume their responsibility in protecting the nation and the citizens, affirms that freedom of expression through peaceful means is guaranteed to everybody."
The White House and the European Union renewed their calls for Mubarak to accept the will of the people, though refrained from telling their veteran ally outright that he should quit.
Egyptians in the streets had no such reservations.
"The people want the president out!" chanted thousands in Cairo. "Wake up, Mubarak! Today is your last day!" was the cry of a crowd in Mahalla, a textile mill town in the Nile Delta.
"There is no turning back. There is no fear," 35-year-old Hassan Shaaban said at the permanent rally in central Cairo. "After Mubarak, no other president will dare to oppress us."
Since Friday, after Mubarak's hated police fought battles with young demonstrators, the army has been on the streets in a massive show of force backed by its U.S.-built tanks. But the soldiers, widely admired by Egyptians, have looked on patiently, letting people vent their fury over poverty and dictatorship.
In Washington, which has backed Mubarak with money and arms as a vital ally against radical Islam in the Middle East, the White House spokesman said bluntly that he must address the grievances of his 80 million people and give them freedom. But he refused to say outright that Mubarak himself should go.
EU foreign ministers meeting in Brussels called for "an orderly transition to a broad-based government, leading to a genuine process of essential democratic reforms".
The uprising erupted amid frustration over repression, corruption, poverty and the lack of democracy. It was in part inspired by the fall of Tunisia's strongman leader on Jan. 14 and has now prompted talk of a domino effect like that of 1989 which swept Soviet puppet governments out of eastern Europe.
"Something historic is happening in the Arab world," Finnish Foreign Minister Alexander Stubb said. "But it's too early to say whether this is the Berlin Wall moment, the 1989 moment."
About 140 people have died in clashes with security forces in scenes that overturned Egypt's standing as a stable country, promising emerging market and attractive tourist destination.
Although the movement started with no clear leaders or organisation, the opposition is taking steps to organise. The Muslim Brotherhood said it was seeking to form a committee with retired U.N. diplomat Mohamed ElBaradei to talk to the army.
Foreign governments scrambled to ensure the safety of their nationals trapped by the unrest in Egypt. One group of tourists was hunkered down in Cairo's Marriott Hotel:
"I had heard a lot about Egypt's history and the pyramids so I am very disappointed I cannot see all that, but I just want to get out," said Albert So, an accountant from Hong Kong.
Companies, from gas drillers to supermarkets, also pulled out staff as confrontation brought economic life to a halt. Financial markets and banks were closed for a second day.
Internationally, global stocks flattened out after opening down on concern about oil and developed market stocks were up. Europe's benchmark Brent crude was just short of $100 a barrel on fears the unrest could spread to regional oil producers.
Moody's downgraded Egypt's credit rating to Ba2 with a negative outlook from Ba1, saying the government might damage its weak finances by increasing social spending.
Additional reporting by Andrew Hammond, Patrick Werr, Dina Zayed, Marwa Awad, Shaimaa Fayed, Sherine El Madany, Yasmine Saleh, Alison Williams and Samia Nakhoul in Cairo, and Peter Apps, Angus MacSwan and William Maclean in London; Writing by Alastair Macdonald; editing by David Stamp