Egyptian President Mohamed Morsi has told the country's senior judges that he did not infringe on their authority when he seized near absolute powers.
Activists on Monday were camped in Cairo's Tahrir Square for a fourth day, blocking traffic with makeshift barricades to protest against what they said was a power-grab by Morsi. Nearby, riot police and protesters clashed intermittently.
Before the president's announcement, leftist politician Hamdeen Sabahy said protests would continue until the decree was scrapped and said Tahrir would be a model of an "Egypt that will not accept a new dictator because it brought down the old one".
Temporary measures
Morsi's office repeated assurances that the measures would be temporary, and said he wanted dialogue with political groups to find "common ground" over what should go in Egypt's constitution, one of the issues at the heart of the crisis.
Hassan Nafaa, a professor of political science at Cairo University, saw an effort by the presidency and judiciary to resolve the crisis, but added their statements were "vague".
"The situation is heading towards more trouble," he said.
Sunday's stock market fall of nearly ten per cent - halted only by automatic curbs - was the worst since the uprising that toppled former President Hosni Mubarak in February, 2011.
"We are back to square one, politically, socially," said Mohamed Radwan of Pharos Securities, an Egyptian brokerage firm.
Morsi's decree marks an effort to consolidate his influence after he successfully sidelined Mubarak-era generals in August, and reflects his suspicions of a judiciary little reformed since the fall of his predecessor.
Issued just a day after Morsi received glowing tributes from Washington for his work brokering a deal to end eight days of Israeli attacks on Gaza, the decree drew warnings from the West to uphold democracy.
Protect the revolution
The Morsi administration has defended his decree as an effort to speed up reforms that will complete Egypt's democratic transformation.
But his calls for dialogue have been rejected by members of the National Salvation Front, a new opposition coalition of liberals, leftists and other politicians and parties, who until Morsi's decree had been a fractious bunch struggling to unite.
The Front includes Sabahy, Nobel Peace Prize laureate Mohamed ElBaradei and former Arab League chief Amr Moussa.
The military has stayed out of the crisis after leading Egypt through a messy 16-month transition to a presidential election in June.
Analysts say Morsi neutralised the army when he sacked top generals in August, appointing a new generation who now owe their advancement to the president.
Though the military still wields influence through business interests and a security role, it is out of frontline politics.
"There is no room for dialogue when a dictator imposes the most oppressive, abhorrent measures and then says 'let us split the difference'," ElBaradei said on Saturday.
Morsi framed his decisions on Thursday as necessary to protect the revolution that toppled Mubarak nearly two years ago and to cement the nation's transition to democratic rule.
Morsi also ordered the retrial of Mubarak and top aides on charges of killing protesters during the uprising.
"He had to act to save the country and protect the course of the revolution,'' Pakinam al-Sharqawi, one of Morsi's aides, said.
"It is a major stage in the process of completing the January 25th revolution,'' she said, alluding to the starting day of last year's uprising against Mubarak.
He also created a new "protection of the revolution'' judicial body to swiftly carry out the prosecutions.
PHOTO CAPTION
A protester tries to kick a tear gas canister away in Cairo November 25, 2012.
Aljazeera