When Egypt raided the offices of American democracy promotion groups in December, warnings poured out of Washington: "Your $1.5 billion in annual aid isn't as sacrosanct as you think it is."

But Egypt has consistently upped the ante with the administration in this confrontation. The latest move came Sunday, with the military junta deciding to put 40 employees of these and other democracy promotion groups on trial – including 19 US citizens. Sam LaHood, the son of President Obama's Transportation Secretary Ray LaHood, is one of a group of Americans currently living in the US Embassy to avoid arrest.

Mr. LaHood and a few of the other officials targeted by Egypt, which says it is investigating illegal foreign funding to political groups, have been barred from leaving the country. The threatened prosecutions are focused on 10 foreign and domestic groups, among them the International Republican Institute (IRI), the National Democratic Institute (NDI), and Freedom House, all heavily financed by US taxpayers.

At the end of January, Senator John McCain, who is friends with the LaHood family as well as chairman of IRI, warned Egypt in stark terms: "I have watched with growing alarm and outrage how the Egyptian government is treating US non-governmental organizations that are working peacefully and transparently to support civil society in Egypt."

What may be behind the confrontation is the growing paranoia of Egypt's ruling generals about continuing protests over military rule. The generals and their civilian supporters consistently warn that malevolent "foreign hands" are behind the protests. They could be prosecuting the NGOs to rally domestic support and redefine the protesters as working with foreigners against Egypt.

"The government will not hesitate to expose foreign schemes that threaten the stability of the homeland," Faiza Aboul Naga, the Minister of International Cooperation, told the state-owned Al Ahram newspaper. Ms. Aboul Naga has spearheaded the NGO probes and sought for years to increase the share of US aid to Egypt directly under the government's control. Freedom House described Naga as a "Mubarak holdover who has been directing the assault against civil society."

Though the groups were not licensed under the Mubarak-era laws designed to control and limit civil society organizations, the American NGOs had been tolerated in Egypt for years and were in frequent communication with the authorities. If Egypt had wanted to curtail their activities, a quiet word could have done so while avoiding this blossoming diplomatic crisis.

"The Egyptian authorities are using a discredited Mubarak-era law to prosecute nongovernmental groups while proposing even more restrictive legislation,” Joe Stork, deputy Middle East director for Human Rights Watch, said in a statement.

On Saturday, Secretary of State Hillary Clinton strongly implied she had told her Egyptian counterpart Mohammed Amr that Egypt's aid was at risk if the country did not back down, and that followed a week of more explicit warnings from lawmakers. "We will have to closely review these matters as it comes time for us to certify whether or not any of these funds from our government can be made available under these circumstances," she told reporters in Munich.

Congress recently attached conditions to Egypt's aid, requiring that the military keep the peace with Israel, demonstrate steps towards handing over full power to civilians, and make progress on human rights before aid would be released.

"The Egyptian military is clearly not meeting at least two of those three conditions right now. Consequently, the Obama administration should not certify compliance, nor should it invoke the national security waiver by arguing that Egyptian-Israeli peace is paramount and that Egypt’s military is the only bulwark against Islamist domination of the country – because both of these arguments are deeply flawed," Michelle Dunne and Shuja Nawaz wrote in the New York Times last Friday. Ms. Dunne is a former State Department official and National Security Council staffer focused on the Middle East.

Egypt is in desperate need of foreign assistance. Tourism and investment have collapsed since the uprising began and capital flight has seen foreign exchange reserves more than halved to about $15 billion, enough to cover about three months of imports. Despite Egypt's shaky finances, the junta has continued to take a series of steps that are going to make it harder for aid to flow.

In addition to going after NGOs, foreign and domestic, the most famous actor in Egypt was given a three month jail sentence last week for "insulting Islam" in his film roles over the years. Adel Imam is probably one of the two or three most popular actors in the Arab world.

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That sentence was handed down with the military, not the Islamists that dominated recent parliamentary elections, in the driver's seat. Though parliament has convened, Egypt's system concentrates power in the hands of the executive. The Supreme Council for the Armed Forces (SCAF) currently occupying the executive role has repeatedly signaled it wants its political influence to extend to the writing of a new constitution. Presidential elections have been promised for later this year.

US democracy NGOs have run into trouble with the Egyptian government in the past, but not to this extent. The work of IRI and NDI in Egypt was suspended for months in 2006, again at the instigation of Aboul Naga, but there were no prosecutions or threats of arrest. The two groups eventually worked out an arrangement with the Mubarak government to resume highly-monitored outreach efforts.