Former president's transfer to hospital greeted by jubilation, indifference and fear that it is another sign of resurgent old order

After more than two years in jail, Egypt's ousted former president Hosni Mubarak is under house arrest in a Cairo military hospital, having been flown by helicopter from prison. His lawyer said this hospital would be the last step on the 85-year-old's road to being freed.

Emerging on to the roof of the prison building carried on a trolley stretcher, casually dressed in white trousers, a shirt and loafers, the former dictator flashed a smile in the direction of assembled supporters.

Mubarak, who ruled for 30 years, still faces retrial on charges of complicity in the killing of protesters during the 25 January revolution. But the dramatic events of the past week – during which he has been transformed from a villain of the state to a man about to win his freedom – has raised doubts over whether the new martial leadership has the will to pursue the case against him.

The final say on where Mubarak will go rests with Hazem el-Beblawi, the prime minister in the military-backed interim government.

Critics fear his release is a sign that the military is reinventing an old order which has regained prominence since elected president and former Muslim Brotherhood member Mohamed Morsi was removed from power on in a military coup backed by popular will seven weeks ago. In a matter of weeks, Egypt has seen the return of the old order's state security and police forces to streets.

Jubilant supporters waited to greet Mubarak outside Torah prison on the southern outskirts of Cairo on Thursday, cheering and chanting "Oh Mubarak raise your head high". A woman in her thirties handed out sweets to onlookers and assembled journalists. "Today is a cause for celebration. Our president is free," she said, her voice occasionally drowned by drivers honking their horns in support.

The small crowd waved posters depicting the octogenarian strongman. A vast Egyptian flag flapped in the wind as the medical helicopter hovered over the prison. It took off again at 3:55pm local time and flew west toward the Maadi military hospital where Mubarak had been held for intermittent bouts of ill-health during his detention.

On the streets of Cairo, the overall mood appears to be indifference, with many people saying the former president is irrelevant to Egypt's current situation.

Hamid, a clerical worker, said: "Mubarak belongs to the past. But it is important to respect the law … [armed forces chief General Abdel Fatah] al-Sisi is smart to put him under house arrest. It shows that he is a wise leader."

Mubarak has been detained for two years and four months awaiting trial on charges of corruption in several small cases and the more notable charge of failing to stop the shooting of protesters during the uprising against his rule in 2011. He was sentenced to life in June 2012 for his role in those events – a ruling which he appealed against, winning a retrial. The next hearing is scheduled for Sunday.

Having served the maximum pre-trial detention period of two years, Mubarak was released on Thursday pending the outcome of his retrial. Activists maintain that the demands of the 2011 uprising, such as an end to police brutality, are a long way away from being achieved. The release of the man they fought so hard to overthrow is perceived as a huge setback to the uprising.

"The release of Mubarak is a bad omen for what is to come; a sign of how much the 25 January revolution is in danger," Mohammed Adel, spokesman for the April 6th youth movement, told the Guardian by telephone. "So far there have not been many achievements for this popular revolution. The police state is back in full force, the army has toppled an elected president and now the dictator has been released."

Others lamented Mubarak's turn of fortunes. "What next? Mubarak returns to his rightful throne?" asked Mohie Salah, a 36-year-old engineer.

Even if Mubarak has no political future, his release is expected to intensify raw tension between the military-backed interim government and the revolutionary youth. Neither will it help to soothe the impasse between the Muslim Brotherhood and the state that resulted in the deaths of almost 900 people, including policemen and soldiers, as security forces launched a violent crackdown on Brotherhood sit-ins in Cairo on 14 August.