Amid fresh fighting by US forces in Iraq, Sunday's meeting between Egyptian President Hosni Mubarak and President Bush at his Texas ranch serves as a reminder of America's deep involvement in this other key Arab nation.

Aid is central to Washington's relationship with Cairo. The US has provided Egypt with $1.3 billion a year in military aid since 1979, and an average of $815 million a year in economic assistance. All told, Egypt has received over $50 billion in US largesse since 1975.

The money is seen as bolstering Egypt's stability, support for US policies in the region, US access to the Suez Canal, and peace with Israel. But some critics question the aid's effectiveness in spurring economic and democratic development in the Arab world's most populous country - a higher US priority after Sept. 11, 2001.

"Aid offers an easy way out for Egypt to avoid reform," says Edward Walker, the US ambassador to Egypt from 1994 to 1998. "They use the money to support antiquated programs and to resist reforms."

Egypt's economy is deeply troubled. Unemployment has climbed to 25 percent, foreign investment last year dropped to a 20-year low, and until recently the currency was losing value on a weekly basis. Rather than helping, American aid is "depressing the need for reform," according to former Ambassador Walker.

Meanwhile, the Mubarak regime is inching towards political reform and democratic pluralism at a pace so slow that many question the sincerity of the government's pro-democracy rhetoric.

In the past, issues like democracy and economic reform were of secondary concern to policymakers looking to shore up a friendly government. Support for Egypt jumped after it made peace with Israel in 1979.

However, US policy has changed since 19 hijackers demonstrated that bolstering stable, pro-American, but undemocratic regimes in the Middle East affected America's security. The ringleader and four of the 9/11 hijackers were Egyptian.

In 2002, the US National Security Strategy articulated a new aid doctrine, saying that money should go to "countries whose governments rule justly, invest in their people, and encourage economic freedom."

Colin Powell's Middle East Partnership Initiative (MEPI) is refocusing funding priorities in the Middle East - including those at USAID's 300 person Cairo office - on economic reform, democracy, education, and women's issues.

"We're shifting our emphases to reflect changes in US foreign policy," said Ken Ellis, the director of USAID Egypt.

USAID is a government-to-government economic assistance program. It operates on the premise that economic development will spur democratic development. In the words of Mr. Ellis, "There is a correlation between strong, vibrant, open economies, and a strong, vibrant, open political system."

But many say that USAID needs to alter its approach if it is going to push successfully for substantive reform in Egypt. Ismail Sabry Abdallah is the former Egyptian minister of development and planning, and negotiated the first USAID contract on behalf of Egypt in 1974.

Now an independent economist, Abdallah says USAID needs to decrease support for the Egyptian government, and increase its support for civil society in order to realize the sort of economic and political reforms that the United States and the Egyptian people desire.

"[USAID] is distributed by the Egyptian government in an anarchic way, through personal contacts and political influence," Abdallah says.

Each year USAID gives $200 million to the Egyptian government in cash handouts to do with as it pleases. The money is theoretically conditional upon economic reforms in problem areas such as deregulation, privatization, and free trade.

Most Egyptian economists and businessmen, however, agree that few positive economic reforms have occurred.

"The role of the state in Egypt is still very similar to the role of the state in Eastern Europe in the 1960s," says Tarek Heggy, the former head of Shell Oil in the Middle East, and a prolific writer on Egyptian society. "I am not aware of much economic reform."

USAID has been ineffective at changing economic policy here because Cairo knows that in the end it will get the US money regardless of its economic policy, according to Walker, who since leaving the State Department has become head of the Middle East Institute in Washington.

"Egypt remains as anti-investment as it has ever been because we have never made our aid program conditional," says Walker.

At Sunday's meeting in Crawford, Texas, geopolitics may temper any US push for Egyptian reform as Bush seeks cooperation from Mubarak on Iraq and Israel's plan to withdraw from the Gaza Strip.

Ellis, who has been in Cairo for eight months, disagrees with the critics of USAID. The Egyptian government is making slow progress toward economic and democratic reform, he says. The doomsday prognoses are coming from those frustrated with the pace of reform, but they do not reflect the reality on the ground, according to Ellis.

"I think Egypt has made significant progress in economic reform," he said. He later added, "I don't accept the fact that [Egypt] is stagnating, and I don't accept the fact that the government of Egypt doesn't want to change."

But Ellis does concede that there is more to be done in Egypt. The country is dominated by the ruling National Democratic Party, which uses a 23-year-old emergency law to restrict civil liberties. There are strict limitations on the establishment of newspapers and political parties, and presidential elections are single-candidate referendums.

Top recipients of US aid each year

IrAQ - In 2004, it will become the largest recipient of US aid, receiving $18.4 billion.

Israel - The largest recipient of US largesse in 2003, getting $2.1 billion in military aid annually; $600 million in economic aid.

Egypt - Out of a US foreign aid budget of about $14 billion in 2003, Egypt was the second largest recipient with $1.3 billion in military aid; $615 million for social programs.

Colombia - Got $540 million to battle the drug trade, and local terrorist groups.

Jordan - Got $250 million in economic support; $198 in military financing.

Peru, Ukraine, Russia Received approximately $200 million each in economic and military aid annually.

Source: Council on Foreign Relations