Cairo, Egypt - Armed religious fundamentalists had battled the Egyptian government for five years before carrying out one of the most shocking atrocities to have hit the country in recent memory - the massacre of 58 tourists and four locals in the ancient city of Luxor in November 1997.

Reports at the time made for grim reading. Six attackers believed to be aligned with the Gamaa Islamiya group used assault weapons to systematically gun down dozens of men, woman and children inside the 3,400-year-old Temple of Hatshepsut, the female pharoah who led Egypt around 1500BC.

Some eyewitnesses said gunmen laughed as they carried out their operation. Others used knives to slice off the noses and ears of their victims.

Opposition calls for Morsi to step down

The attack devastated the tourist industry and has not been forgotten by locals, most of whom depend on foreign visitors for their survival. More than half of the tourists killed were Swiss and the rest Japanese, British, German and Colombian.

So, when President Mohamed Morsi announced a provincial government reshuffle a week ago, many in the town were dumbfounded when he revealed the new governor of Luxor would be a former leading member of Gamaa Islamiya - the same group whose gunmen were dispatched 15 years ago to massacre tourists.

Outrage

The new man in charge, former engineer Adel al-Khayat, is a member of the Construction and Development Party, the political wing of Gamaa Islamiya.

The group long ago renounced violence - partly in response to the wave of public revulsion towards armed Islamic groups that followed the 1997 attack. It later won several seats in the lower house of parliament during the elections that followed the toppling of Hosni Mubarak in 2011.

Yet Morsi's decision to appoint Khayat has nevertheless triggered outrage in the city.

On Tuesday, the controversy deepened as Tourism Minister Hisham Zaazou tendered his resignation in protest over the president's decision. He reportedly said the move would have "dire consequences" for Egypt's tourism industry.

With nationwide demonstrations against Morsi's rule planned for June 30, the crisis has left the president increasingly exposed.

"Why do we need this man from Gamaa Islamiya?" asked Mohamed Osman from the Travel Agents Association in Luxor. "It's well known here that they are the group who killed all those tourists in 1997. It seems clear to me that Mohamed Morsi wants to destroy the tourism business here."

Backlash

Groups of locals began protesting outside Khayat's riverside office immediately after his appointment. There was even talk of blockading the airport to prevent him arriving in the town.

Why do we need this man from Gamaa Islamiya? ...It seems clear to me that Mohamed Morsi wants to destroy the tourism business here. Mohamed Osman, Travel Agents' Association

At a hastily arranged meeting this week, the local hotel and travel agent associations met with politicians and Luxor shopkeepers to decide how to respond to the latest development. According to one person who was present, incensed hotel managers said they would refuse to have any dealings with the new governor.

"We need somebody who has expertise in travel to be the governor of Luxor," said Mohamed Abdel Samir, the manager of Viking Travel. "We want somebody who can promote Luxor. Somebody who understands our problems and can sort them out."

Much of the concern is based on whether Morsi should have foisted a former leader of an armed group onto the scene of his group's most notorious crime.

"What if we have a Japanese delegation coming here?" asked Mohamed Abdel Samir. Nine Japanese tourists died during the 1997 assault. Samir added that concerts and other events were often staged in the Temple of Hatshepsut. "Will he attend these parties?" he asked.

But there other worries - such as the wisdom of appointing an Islamist politician in an area so dependent upon the custom of foreign, often Western tourists.

"If we have famous female visitors in Luxor, do you think he will meet them?" asked Sarwat el-Agamy, chairman of the Travel Agents Association in the ancient city.

Rebellion

The growing unease in Luxor reflects the mounting nationwide tension as the country inches closer to the mass protests expected to call for Morsi's resignation.

The protests will mark the culmination of the Tamarod , or Rebellion, campaign - a grassroots movement to collect 15 million signatures calling for the president to step down.

It has now been appropriated by the liberal and secular opposition - many of whom argue that Morsi has forfeited his legitimacy by marginalising them during the first year of his administration.

Morsi's Muslim Brotherhood sees things differently. The president was elected in a fair and transparent poll, they argue. Protests are to be welcomed - particularly in this halcyon era of post-Mubarak democracy. But woe betide anybody who seeks to topple the president through violence.

"We've got no problem with peaceful protests," said Walid el-Haddad, an official from the Muslim Brotherhood's political wing. "But on the other hand it will be a big problem if the opposition tries to make any disturbance in the country, because now we are trying to recover from our economic crisis and to continue the democratic transition."

Crumbling alliances

After Morsi came to power in June 2012, the alliances which the Muslim Brotherhood had struck with fellow Islamists began to crumble.

The Al-Nour party, a Salafi movement which was once a reliable ally of the Brotherhood, turned its guns on their erstwhile allies. Analysts say they felt excluded from power, despite claiming the second highest number of seats in the 2011 parliamentary elections.

Gamaa Islamiya, through its Construction and Development Party, have done precisely the opposite, according to Egyptian journalist Dina Samak.

Morsi has lost credibility... He is using Gamaa Islamiya and other groups in order to mobilise their supporters against the opposition. Dina Samak, journalist

She argued that the party was being used by the Brotherhood to shore up its political Islamist credentials and counter the opposition threat. In return, its members got their hands on some of the highly prized keys to power.

"Morsi has lost credibility in the street and cannot convince the opposition to enter dialogue," she said. "He is using Gamaa Islamiya and other groups in order to mobilise their supporters against the opposition."

It is a message which rings home, said Samak, because the religious parties now believe that if Morsi loses power after June 30, all the Islamist movements will suffer.

"By assigning a governor from the group to Luxor, Morsi is giving the message that Gamaa Islamiya is included in his plans for the future," she concluded.

But both sides are now engaged in a dangerous game of brinkmanship, according to Professor Khalil al-Anani, an expert on Islamist movements in Egypt.

"The confrontation is now clear," he said. "It is heading towards a bloody standoff."

He said the two sides were banking on a gamble. In the opposition camp, politicians and activists believe they can bring down the government, possibly by utilising the army if it is forced to step in to prevent widespread violence.

On the other hand, Islamists are betting on the legitimacy of Morsi's election and the fatigue of a public worn down by two years of turmoil.

"There are currently no concessions on either side," he said. "We are talking about two entirely contradictory views for the future of Egypt."

Follow Alastair Beach on Twitter: @Alastair_Beach