Military-led authorities in Egypt have held off from carrying out a threat to clear protest sit-ins by supporters of ousted president Mohammed Mursi by force.
Mr Mursi, Egypt’s first freely elected president, was ousted on 3 July following large protests.
Interim President Adly Mansour declared yesterday that international diplomatic efforts to resolve the political crisis had failed and the government warned protesters to leave their protest camps.
But a military source said the authorities were holding back from using force to clear the camps, partly due to fears that liberal Vice President Mohamed ElBaradei would resign.
Mr ElBaradei is a key source of political legitimacy for army rule.
US and European Union envoys left Cairo after the breakdown of their attempts to broker a solution, which had also involved Qatar and the United Arab Emirates.
However, a person involved in the mediation effort said the authorities and Mr Mursi's Muslim Brotherhood might yet step back from confrontation and implement mutual confidence building steps that could lead to a negotiated settlement.
The diplomat said: "It's not over yet. It could work but we don't have any guarantees. Everything is very fragile."
Egyptian government and military sources also said the talks were not finished for good but had been frozen to ease public anger over perceived foreign interference in Egypt's affairs.
There is also anger at the willingness of authorities to negotiate with the Brotherhood after months of demonising them.
The new authorities have accused Islamist leaders of inciting violence, have frozen the Brotherhood's assets and vowed to put them on trial.
Thousands of demonstrators converged on a Brotherhood protest camp in northeastern Cairo to attend prayers and a rally on the first day of the Eid al-Fitr holiday after the end of Ramadan.
Secular and leftist groups have also called for mass demonstrations and public prayers across Egypt to support what they see as a popular revolution that led to the overthrow of Mr Mursi by the military after just a year in office.
So far, the Brotherhood has refused to accept what it calls an illegal coup against Mr Mursi and has publicly demanded the return of the elected president, who is detained at a secret location.
Meanwhile, prosecutors have dropped the main charge against the head of the Brotherhood's political wing, Saad El-Katatni, in a possible prelude to releasing him.
