Story highlights The U.S. gives Egypt about $1.23 billion in military aid a year

Egypt is one of two Arab countries that has made peace with Israel

The U.S. also has interests with the Suez Canal and American companies in Egypt

President Obama has canceled joint military exercises with Egypt

When Egypt's first democratically elected president was tossed out this year, the White House stopped short of calling it a coup.

Doing so would have forced an end to the $1.23 billion that the United States sends in military aid a year -- and changed the course of its relationship with its strongest Arab ally in the region.

But that was before Wednesday, when the military-led interim government stormed two camps full of former President Mohamed Morsy's supporters. More than 525 people were killed and 3,717 wounded in the bloodiest day in Egypt's recent history, officials there said.

On Thursday, President Barack Obama condemned the violence against civilians and announced the United States is canceling next month's joint U.S.-Egyptian military exercises.

But will the carnage in Egypt spur more changes in U.S. policy toward the most populous Arab country? And might the hardening U.S. stance affect Egypt's own approach?

Photos: Photos: Egypt protests Photos: Photos: Egypt protests Photos: Egypt protests – Protesters and Egyptian riot police clash in Cairo on January 17, as the country awaits the results of a constitutional referendum. On January 18, the electoral commission announced the constitution had overwhelmingly been approved. Hide Caption 1 of 20 Photos: Photos: Egypt protests Photos: Egypt protests – An Egyptian youth holds up his national flag outside a polling station in Cairo on January 14, day one of a two-day vote on a new constitution. Hide Caption 2 of 20 Photos: Photos: Egypt protests Photos: Egypt protests – On December 25, 2013, The Egyptian interim government declared the Mohammed Morsy-led Muslim Brotherhood a terrorist organization. The action was taken in response to a police station bombing in Mansoura, which the government has stated was the responsibility of the Brotherhood, despite denials from the group itself. Hide Caption 3 of 20 Photos: Photos: Egypt protests Photos: Egypt protests – Cairo University's students backing ousted Islamist president Mohamed Morsy flash the four-finger sign during a demonstration against July's military "coup " in Tahrir square on December 1, 2013. The four-finger sign has become associated with a government crackdown on pro-Morsy supporters in Cairo's Rabaa al-Adawiya square on August 14. Hide Caption 4 of 20 Photos: Photos: Egypt protests Photos: Egypt protests – Egyptian women members of the Muslim Brotherhood hold roses as they stand in the defendants' cage dressed in prison issue white during their trial in at the court in the Egyptian Mediterranean city of Alexandria on December 7, 2013. Hide Caption 5 of 20 Photos: Photos: Egypt protests Photos: Egypt protests – Egyptian protesters use flare lights at Talaat Harb Square in downtown Cairo on November 26, 2013 during a clash with police after the security forces dispersed protesters from a demonstration organized by human rights group "No Military Trials for Civilians" in the first unauthorized protest staged in the capital since the adoption of a law that regulates demonstrations. Hide Caption 6 of 20 Photos: Photos: Egypt protests Egypt protests – A soldier sets up barbed wire in anticipation of protesters outside the constitutional court in Cairo on Sunday, August 18, 2013. During the previous week about 900 people -- security forces as well as citizens -- had been killed. Deaths occurred when the military used force to clear supporters of ousted president Mohamed Morsy from two sit-in sites in Cairo, and violence raged after Morsy supporters staged demonstrations. Hide Caption 7 of 20 Photos: Photos: Egypt protests Egypt protests – Friends and relatives of Ammar Badie, 38, killed during clashes in Ramses Square, carry his coffin during his funeral in Al-Hamed mosque in Cairo on August 18, 2013. Ammar Badie was the son of the Muslim Brotherhood's spiritual leader, Mohammed Badie. Hide Caption 8 of 20 Photos: Photos: Egypt protests Egypt protests – Wreckage and debris litter the area around the Al-Fateh mosque in Cairo, where hundreds of Islamist protesters had barricaded themselves on Saturday, August 17, 2013. Thousands defied an emergency order by taking to the streets the day before to mark a "Friday of anger" in support of ousted president Mohamed Morsy. Hide Caption 9 of 20 Photos: Photos: Egypt protests Egypt protests – Policemen stand guard inside a room of Al-Fateh mosque as supporters of ousted president Mohamed Morsy exchange gunfire with security forces inside the mosque in Cairo on Saturday, August 17, 2013. Hide Caption 10 of 20 Photos: Photos: Egypt protests Egypt protests – Members of the Muslim Brotherhood and Mohamed Morsy supporters flee shooting near Ramses Square in Cairo on August 16, 2013. Hide Caption 11 of 20 Photos: Photos: Egypt protests Egypt protests – Egyptian soldiers take positions alongside armored vehicles as they guard the entrance to Tahrir Square in Cairo on Friday, August 16, 2013. Hide Caption 12 of 20 Photos: Photos: Egypt protests Egypt protests – A man on checks out a list of names of those killed in the crackdown on, on August 15, 2013. Hide Caption 13 of 20 Photos: Photos: Egypt protests Egypt protests – A man walks inside the burned-out Rabaa Al-Adawiya mosque in Cairo on August 15, 2013. Hide Caption 14 of 20 Photos: Photos: Egypt protests Photos: Egypt protests – Mohamed Morsy masks are displayed for sale at the base for supporters of the ousted president on July 12, 2013 in Cairo, Egypt. The country has been in a state of political paralysis following the ousting of former president and Muslim Brotherhood leader Morsy by the military. Hide Caption 15 of 20 Photos: Photos: Egypt protests Photos: Egypt protests – Two veiled Egyptian women, supporters of Mohamed Morsy, sit in front of police standing behind barbed wire fencing that blocks the access to the headquarters of the Republican Guard in Cairo on July 8, 2013. Hide Caption 16 of 20 Photos: Photos: Egypt protests Egypt protests – A woman tries to stop a military bulldozer from hurting a wounded youth during clashes on August 14, 2013, in eastern Cairo. Hide Caption 17 of 20 Photos: Photos: Egypt protests Egypt protests – Supporters of ousted president Mohamed Morsy run as Egyptian security forces fire toward them on August 14, 2013. Hide Caption 18 of 20 Photos: Photos: Egypt protests Egypt protests – The national identity cards of protesters allegedly killed during a clear-out operation by Egyptian security forces on pro-Morsy demonstrators are exchanged at the Rabaa al-Adawiya Medical Center on August 14, 2013. Hide Caption 19 of 20 Photos: Photos: Egypt protests Egypt protests – Egyptian security forces detain protesters in Cairo's Nasr City district on August 14, 2013. Hide Caption 20 of 20

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The short answer: We'll have to wait and see.

'A hornets' nest'

The United States helps Egypt in part because it's one of only two Arab countries -- along with Jordan -- that made peace with Israel.

In return, Egypt gets more than $1 billion each year in U.S. taxpayer money for military and civilian programs. No other country except Israel gets more.

That aid buys Washington an ally to depend on in a turbulent region.

The U.S. doesn't want to upset that balance. And pulling aid might do so.

"It's a hornets' nest. And that's why the administration is trying not to stir it too much," CNN's Fareed Zakaria said.

Give up some to get some

But it's not just the peace process and regional stability that the United States is interested in.

Egypt controls the Suez Canal, a crucial sea route used by more than 4% of the world's oil traffic and 8% of all seaborne trade. So far, the canal is running smoothly. But a disruption there could end up hitting Americans in the pocketbook, not to mention affect the safe passage of U.S. military ships and equipment.

Then there's business for American companies, intelligence cooperation -- and the military relationship.

"The reality is that the Egyptian military has not only been a source of stability for the United States in an otherwise turbulent Middle East, but it has also been a cash cow," said Khairi Abaza, a senior fellow at the Foundation for Defense of Democracies.

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"Currently, the Egyptian military relies on U.S. military equipment, training and services. This reliance means that Egypt is essentially a client of the U.S. military complex, and aid money is in fact re-injected back into the U.S. economy."

All of the factors are enough to give the U.S. pause.

"If you want a different relationship, you have to articulate what that looks like, and accept you are going to have to give up some things to get other things."

'A really tough dilemma'

From the Obama administration's side, it's an "incredibly complex and difficult situation" that will require more time to figure out.

That's what White House spokesman Jay Carney said in July soon after Morsy was ousted, and reporters pressed him as to why the administration wasn't calling it a coup.

"It would not be in the best interests of the United States to immediately change our assistance programs" to Egypt, Carney said at the time.

Middle East analyst Robin Wright with the Wilson Center says the core issue is what our policy ought to be.

"The United States faces a really tough dilemma now," she said. "What to do about the most important country in the Arab world, the cornerstone of the peace process, a country that has received over $30 billion in U.S. aid since the peace process began in the late 1970s."

Calls mounting

Some in Congress, including Republican Sen. John McCain of Arizona, already have called for halting the aid, saying the United States "should not be supporting this coup." McCain traveled to Egypt on August 5 along with Sen. Lindsey Graham of South Carolina. Both held meetings with representatives of the interim government and the Muslim Brotherhood.

Democratic Sen. Robert Menendez of New Jersey, chairman of the Senate Foreign Relations Committee, has said the United States hasn't committed much of this year's aid -- and that's a good thing.

"This is an opportunity to have a pause and say to the Egyptians, 'You have an opportunity to come together,' " he said. "You have to have the military understand that that's what we're looking for, a transition right away, as soon as possible."

Three choices

According to senior U.S. officials last month, the administration is examining three potential options:

-- Call it a coup and cut off aid.

-- Call it a coup and issue a national security waiver to allow aid to continue.

-- Don't call it a coup because the Egyptian military has taken steps to move the country toward a civilian transitional government and subsequent elections.

Now, officials -- both current and former -- recognize the climate is not encouraging.

'Time to call it a coup'

"I think it is time to call it a coup. I think it was time six weeks ago," former Assistant Secretary of State P.J. Crowley said Wednesday.

"Suspend military assistance so the military is invested in the process of rewriting the constitution, setting the parliament and electing a new president."

Secretary of State John Kerry said Wednesday that while a political solution is still possible, "it has been made much, much harder, much more complicated."

"The path toward violence leads only to greater instability, economic disaster and suffering," Kerry said

He also called for an end to Egypt's new state of emergency, which prevents freedom of peaceful assembly and due process.

U.S. still considering its strategy

But as far as firm actions, the United States' game plan has yet to be drawn.

The Pentagon is mulling whether to halt or delay arms exports.

But as leaders in Washington mull their options, Americans overwhelmingly support staying out of the unrest, according to a recent United Technologies/National Journal Congressional Connection Poll.

Almost eight in 10 Americans (78%) said the United States should "mostly stay out of events" in Egypt, according to the poll. But 16% said the U.S. should "do more" to end the violence.

The desire to stay out of Egypt's affairs might be connected to the fact that a majority of Americans feel what happens in the country isn't very important to U.S. interests.

According to a Pew Research Center poll, 61% of Americans say what happens in Egypt is somewhat important or not important, while 36% say it is very important.

But ultimately, it's up to Egyptians to find a peaceful resolution between the military-backed interim government and those who want Morsy back.

"The role the United States had tried to play as mediator between the military and the Muslim Brotherhood to try to find some kind of compromise is now moot," said Wright, the Middle East analyst. "There's not much the United States can do."