To the horror of Egyptians and the world, President Hosni Mubarak – haggard and apparently disoriented – appeared on state television last night to refuse every demand of his opponents by staying in power for at least another five months. The Egyptian army, which had already initiated a virtual coup d'état, was nonplussed by the President's speech which had been widely advertised – by both his friends and his enemies – as a farewell address after 30 years of dictatorship. The vast crowds in Tahrir Square were almost insane with anger and resentment.

Mubarak tried – unbelievably – to placate his infuriated people with a promise to investigate the killings of his opponents in what he called "the unfortunate, tragic events", apparently unaware of the mass fury directed at his dictatorship for his three decades of corruption, brutality and repression.

The old man had originally appeared ready to give up, faced at last with the rage of millions of Egyptians and the power of history, sealed off from his ministers like a bacillus, only grudgingly permitted by his own army from saying goodbye to the people who hated him.

Yet the very moment that Hosni Mubarak embarked on what was supposed to be his final speech, he made it clear that he intended to cling to power. To the end, the President's Information Minister insisted he would not leave. There were those who, to the very last moment, feared that Mubarak's departure would be cosmetic – even though his presidency had evaporated in the face of his army's decision to take power earlier in the evening.

History may later decide that the army's lack of faith in Mubarak effectively lost his presidency after three decades of dictatorship, secret police torture and government corruption. Confronted by even greater demonstrations on the streets of Egypt today, even the army could not guarantee the safety of the nation. Yet for Mubarak's opponents, today will not be a day of joy and rejoicing and victory but a potential bloodbath.

But was this a victory for Mubarak or a military coup d'état? Can Egypt ever be free? For the army generals to insist upon his departure was as dramatic as it was dangerous. Are they, a state within a state, now truly the guardians of the nation, defenders of the people – or will they continue to support a man who must be judged now as close to insanity? The chains which bound the military to the corruption of Mubarak's regime were real. Are they to stand by democracy – or cement a new Mubarak regime?

Even as Mubarak was still speaking, the millions in Tahrir Square roared their anger and fury and disbelief. Of course, the millions of courageous Egyptians who fought the whole apparatus of state security run by Mubarak should have been the victors. But as yesterday afternoon's events proved all too clearly, it was the senior generals – who enjoy the luxury of hotel chains, shopping malls, real estate and banking concessions from the same corrupt regime – who permitted Mubarak to survive. At an ominous meeting of the Supreme Council of the Egyptian Armed Forces, Defence Minister Mohamed Tantawi – one of Mubarak's closest friends – agreed to meet the demands of the millions of democracy protesters, without stating that the regime would itself be dissolved. Mubarak himself, commander-in-chief of the army, was not permitted to attend.

But this is a Middle Eastern epic, one of those incremental moments when the Arab people – forgotten, chastised, infantilised, repressed, often beaten, tortured too many times, occasionally hanged – will still strive to give the great wheel of history a shove, and shake off the burden of their lives. Last night, however, dictatorship had still won. Democracy had lost.

All day, the power of the people had grown as the prestige of the President and his hollow party collapsed. The vast crowds in Tahrir Square began yesterday to move out over all of central Cairo, even moving behind the steel gates of the People's Assembly, setting up their tents in front of the pseudo-Greek parliament building in a demand for new and fair elections. Today, they were planning to enter the parliament itself, taking over the symbol of Mubarak's fake "democracy". Fierce arguments among the army hierarchy – and apparently between Vice-President Omar Suleiman and Mubarak himself – continued while strikes and industrial stoppages spread across Egypt. Well over seven million protesters were estimated to be on the streets of Egypt yesterday – the largest political demonstration in the country's modern history, greater even than the six million who attended the funeral of Gamal Abdul Nasser, the first Egyptian dictator whose rule continued through Anwar Sadat's vain presidency and the three dead decades of Mubarak.

It was too early, last night, for the crowds in Tahrir Square to understand the legal complexities of Mubarak's speech. But it was patronising, self-serving and immensely dangerous. The Egyptian constitution insists that presidential power must pass to the speaker of parliament, a colourless Mubarak crony called Fatih Srour, and elections – fair ones, if this can be imagined – held within 60 days. But many believe that Suleiman may choose to rule by some new emergency law and then push Mubarak out of power, staking out a timetable for new and fraudulent elections and yet another terrible epoch of dictatorship. The truth, however, is that

the millions of Egyptians who have tried to unseat their Great Dictator regard their constitution – and the judiciary and the entire edifice of government institutions – with the same contempt as they do Mubarak. They want a new constitution, new laws to limit the powers and tenure of presidents, new and early elections which will reflect the "will of the people" rather than the will of the president or the transition president, or of generals and brigadiers and state security thugs.

Last night, a military officer guarding the tens of thousands celebrating in Cairo threw down his rifle and joined the demonstrators, yet another sign of the ordinary Egyptian soldier's growing sympathy for the democracy demonstrators. We had witnessed many similar sentiments from the army over the past two weeks. But the critical moment came on the evening of 30 January when, it is now clear, Mubarak ordered the Egyptian Third Army to crush the demonstrators in Tahrir Square with their tanks after flying F-16 fighter bombers at low level over the protesters.

Many of the senior tank commanders could be seen tearing off their headsets – over which they had received the fatal orders – to use their mobile phones. They were, it now transpires, calling their own military families for advice. Fathers who had spent their lives serving the Egyptian army told their sons to disobey, that they must never kill their own people.

Thus when General Hassan al-Rawani told the massive crowds yesterday evening that "everything you want will be realised – all your demands will be met", the people cried back: "The army and the people stand together – the army and the people are united. The army and the people belong to one hand."

Last night, the Cairo court prevented three ministers – so far unnamed, although they almost certainly inc-lude the Minister of Interior – from leaving Egypt.

But neither the army nor Vice-President Suleiman are likely to be able to face the far greater demonstrations planned for today, a fact that was conveyed to 83-year-old Mubarak by Tantawi himself, standing next to Suleiman. Tantawi and another general – believed to be the commander of the Cairo military area – called Washington, according to a senior Egyptian officer, to pass on the news to Robert Gates at the Pentagon. It must have been a sobering moment. For days, the White House had been grimly observing the mass demonstrations in Cairo, fearful that they would turn into a mythical Islamist monster, frightened that Mubarak might leave, even more terrified he might not.

The events of the past 12 hours have not, alas, been a victory for the West. American and European leaders who rejoiced at the fall of communist dictatorships have sat glumly regarding the extraordinary and wildly hopeful events in Cairo – a victory of morality over corruption and cruelty – with the same enthusiasm as many East European dictators watched the fall of their Warsaw Pact nations. Calls for stability and an "orderly" transition of power were, in fact, appeals for Mubarak to stay in power – as he is still trying to do – rather than a ringing endorsement of the demands of the overwhelming pro-democracy movement that should have struck him down.

Timeline...

11.00 As demonstrators mass in Cairo's Tahrir Square, the Foreign Minister warns of a military coup if protests continue

15.15 The Egyptian Prime Minister, Ahmed Shafiq, tells the BBC Arabic Service that Mubarak may step down

15.20 The secretary general of the ruling NDP party, Hossan Badrawy, says he expects Mubarak to make an announcement that will satisfy protesters' demands

15.30 An Egyptian army commander tells protesters in Tahrir Square that: "Everything you want will be realised"

15.45 Egypt's military council releases a statement saying it is in continuous session and the army will take necessary measures to "safeguard the homeland", in the clearest sign that Mubarak will be on his way out soon

16.04 The Information Minister, Anas el-Fekky, says Mubarak is in fact not stepping down and remains Egypt's President

16.15 Al Arabiya television station carries an unconfirmed report that Mubarak has travelled to the Red Sea resort of Sharm el-Sheikh with his army chief of staff

17.11 A senior member of the Muslim Brotherhood, the biggest opposition group, says he fears the army is staging a coup