Selling flak jackets in the cyberwars

SAN FRANCISCO (Reuters) – When the Israeli army and Hamas trade virtual blows in cyberspace, or when hacker groups like Anonymous rise from the digital ether, or when WikiLeaks dumps a trove of classified documents, some see a lawless Internet.

But Matthew Prince, chief executive at CloudFlare, a little-known Internet start-up that serves some of the Web’s most controversial characters, sees a business opportunity.

Founded in 2010, CloudFlare markets itself as an Internet intermediary that shields websites from distributed denial-of-service, or DDoS, attacks, the crude but effective weapon that hackers use to bludgeon websites until they go dark. The 40-person company claims to route up to 5 percent of all Internet traffic through its global network.

Prince calls his company the “Switzerland” of cyberspace – assiduously neutral and open to all comers. But just as companies like Twitter, YouTube and Facebook have faced profound questions about the balance between free speech and openness on the Internet and national security and law enforcement concerns, CloudFlare‘s business has posed another thorny question: what kinds of services, if any, should an American company be allowed to offer designated terrorists and cyber criminals?

CloudFlare’s unusual position at the heart of this debate came to the fore last month, when the Israel Defense Forces sought help from CloudFlare after its website was struck by attackers based in Gaza. The IDF was turning to the same company that provides those services to Hamas and the al-Quds Brigades, according to publicly searchable domain information. Both Hamas and al-Quds, the military wing of the Palestinian Islamic Jihad, are designated by the United States as terrorist groups.

Under the USA Patriot Act, U.S. firms are forbidden from providing “material support” to groups deemed foreign terrorist organizations. But what constitutes material support – like many other facets of the law itself – has been subject to intense debate.

CloudFlare’s dealings have attracted heated criticism in the blogosphere from both Israelis and Palestinians, but Prince defended his company as a champion of free speech.

“Both sides have an absolute right to tell their story,” said Prince, a 38-year old former lawyer. “We’re not providing material support for anybody. We’re not sending money, or helping people arm themselves.”

Prince noted that his company only provides defensive capabilities that enable websites to stay online.

“We can’t be sitting in a role where we decide what is good or what is bad based on our own personal biases,” he said. “That’s a huge slippery slope.”

Many U.S. agencies are customers, but so is WikiLeaks, the whistle-blowing organization. CloudFlare has consulted for many Wall Street institutions, yet also protects Anonymous, the “hacktivist” group associated with the Occupy movement.

Prince‘s stance could be tested at a time when some lawmakers in the United States and Europe, armed with evidence that militant groups rely on the Web for critical operations and recruitment purposes, have pressured Internet companies to censor content or cut off customers.

Last month, conservative political lobbies, as well as seven lawmakers led by Ted Poe, a Republican from Texas, urged the FBI to shut down the Hamas Twitter account. The account remains active; Twitter declined to comment.

MATERIAL SUPPORT

Although it has never prosecuted an Internet company under the Patriot Act, the government’s use of the material support argument has steadily risen since 2006. Since September 11, 2001, more than 260 cases have been charged under the provision, according to Fordham Law School’s Terrorism Trends database.

Catherine Lotrionte, the director of Georgetown University’s Institute for Law, Science and Global Security and a former Central Intelligence Agency lawyer, argued that Internet companies should be more closely regulated.

“Material support includes web services,” Lotrionte said. “Denying them services makes it more costly for the terrorists. You’re cornering them.”

But others have warned that an aggressive government approach would have a chilling effect on free speech.

“We’re resurrecting the kind of broad-brush approaches we used in the McCarthy era,” said David Cole, who represented the Humanitarian Law Project, a non-profit organization that was charged by the Justice Department for teaching law to the Kurdistan Workers’ Party, which is designated by the United States as a terrorist group. The group took its case to the Supreme Court but lost in 2010.

The material support law is vague and ill-crafted, to the point where basic telecom providers, for instance, could be found guilty by association if a terrorist logs onto the Web to plot an attack, Cole said.

In that case, he asked, “Do we really think that AT&T or Google should be held accountable?”

CloudFlare said it has not been contacted about its services by the U.S. government. Spokespeople for Hamas and the Palestinian Islamic Jihad, told Reuters they contracted a cyber-security company in Gaza that out-sources work to foreign companies, but declined to comment further. The IDF confirmed it had hired CloudFlare, but declined to discuss “internal security” matters.

CloudFlare offers many of its services for free, but the company says websites seeking advanced protection and features can see their bill rise to more than $ 3,000 a month. Prince declined to discuss the business arrangements with specific customers.

While not yet profitable, CloudFlare has more than doubled its revenue in the past four months, according to Prince, and is picking up 3,000 new customers a month. The company has raked in more than $ 22 million from venture capital firms including New Enterprise Associates, Venrock and Pelion Venture Partners.

Prince, a Midwestern native with mussed brown hair who holds a law degree from the University of Chicago, said he has a track record of working on the right side of the law.

A decade ago, Prince provided free legal aid to Spamhaus, an international group that tracked email spammers and identity thieves. He went on to create Project Honey Pot, an open source spam-tracking endeavor that turned over findings to police.

Prince’s latest company, CloudFlare, has been hailed by groups such as the Committee to Protect Journalists for protecting speech. Another client, the World Economic Forum, named CloudFlare among its 2012 “technology pioneers” for its work. But it also owes its profile to its most controversial customers.

CloudFlare has hosted 4Chan, the online messaging community that spawned Anonymous. LulzSec, the hacker group best known for targeting Sony Corp, is another customer. And since last May, the company has propped up WikiLeaks after a vigilante hacker group crashed the document repository.

Last year, members of the hacker collective UgNazi, whose exploits include pilfering user account information from eBay and crashing the CIA.gov website, broke into Prince’s cell phone and email accounts.

“It was a personal affront,” Prince said. “But we never kicked them off either.”

Prince said CloudFlare would comply with a valid court order to remove a customer, but that the Federal Bureau of Investigation has never requested a takedown. The company has agreed to turn over information to authorities on “exceedingly rare” occasions, he acknowledged, declining to elaborate.

“Any company that doesn’t do that won’t be in business long,” Prince said. But in an email, he added: “We have a deep and abiding respect for our users’ privacy, disclose to our users whenever possible if we are ordered to turn over information and would fight an order that we believed was not proper.”

Juliannne Sohn, an FBI spokeswoman, declined to comment.

Michael Sussmann, a former Justice Department lawyer who prosecuted computer crimes, said U.S. law enforcement agencies may in fact prefer that the Web’s most wanted are parked behind CloudFlare rather than a foreign service over which they have no jurisdiction.

Federal investigators “want to gather information from as many sources as they can, and they’re happy to get it,” Sussmann said.

In an era of rampant cyber warfare, Prince acknowledged he is something of a war profiteer, but with a wrinkle.

“We’re not selling bullets,” he said. “We’re selling flak jackets.”

(Reporting By Gerry Shih in San Francisco and Nidal al-Mughrabi in Gaza; editing by Jonathan Weber and Claudia Parsons)

Internet News Headlines – Yahoo! News

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Prince William Attends The Hobbit Premiere Without Kate

By Simon Perry

12/12/2012 at 03:40 PM EST

With wife Kate resting as she copes with her pregnancy illness, Prince William stepped out solo on Wednesday evening for the premiere of The Hobbit in London.

The dashing young royal told guests at the special screening of the tale from Middle Earth that Kate would have "loved" to have attended the event. But the expectant mom has had to cancel a number of appearances while she battles severe morning sickness caused by hyperemesis gravidarum.

Tuxedoed William, 30, was the guest of honor at the royal premiere at the Odeon in London's Leicester Square, where he met filmmakers and some of the movie's stars, including Sir Ian McKellen and Cate Blanchett.

The cinema's general manager Tessa Street met William in the welcome line and asked about Kate. "I passed on my best wishes to Kate and he said, 'She would have loved to have been here if she could,' " Street told reporters.

The evening raised money for the Cinema and Television Benevolent Fund, and one of the fund's trustees Debbie Chalet also met the prince. "I said to William 'Thank you for taking the time to come and be here tonight,' because I'm sure he wants to be at home making sure Kate's okay."

Blanchett, who stars as Galadriel in The Hobbit, braved the chilly temperatures in a backless white Givenchy gown. Asked on the carpet how she was doing, she said, "I'm cold, but very excited."

Inside, just before the movie started, McKellen, who plays Gandalf in the movie, led the audience in sending best wishes to Kate.

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Congress examines science behind HGH test for NFL

WASHINGTON (AP) — A congressional committee has opened a hearing to examine the science behind a human growth hormone test the NFL wants to start using on its players.

Nearly two full seasons have passed since the league and the players' union signed a labor deal that set the stage for HGH testing.

The NFL Players Association won't concede the validity of a test that's used by Olympic sports and Major League Baseball, and the sides haven't been able to agree on a scientist to help resolve that impasse.

Among the witnesses before the House Oversight and Government Reform Committee on Wednesday is Pro Football Hall of Fame member Dick Butkus. In his prepared statement, Butkus writes: "Now, let's get on with it. The HGH testing process is proven to be reliable."

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Dow briefly negative; S&P 500 pares gain

Perhaps the most exciting thing about Peter Jackson's landmark, blockbuster Lord of the Rings films was that they made fans, through a combination of stunning landscapes and intricate special effects and soaring music and dramatic spectacle, feel as though we were seeing an almost impossible elevation of the potential size and scope of movies. Here was a rich, dense, sprawling series of films that thundered like myths, that were breathtaking in their realization of some pretty huge ambitions. ...

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North Korea rocket launch raises nuclear stakes

SEOUL/TOKYO (Reuters) - North Korea successfully launched a rocket on Wednesday, boosting the credentials of its new leader and stepping up the threat the isolated and impoverished state poses to opponents.

The rocket, which North Korea says put a weather satellite into orbit, has been labeled by the United States, South Korea and Japan as a test of technology that could one day deliver a nuclear warhead capable of hitting targets as far away as the continental United States.

"The satellite has entered the planned orbit," a North Korean television news reader clad in traditional Korean garb announced, after which the station played patriotic songs with the lyrics "Chosun (Korea) does what it says".

The rocket was launched just before 10 a.m. (0100 GMT), according to defense officials in South Korea and Japan, and was more successful than a rocket launched in April that flew for less than two minutes.

The North American Aerospace Defense Command (NORAD), a joint U.S.-Canadian military organization, said that the missile had "deployed an object that appeared to achieve orbit".

North Korea followed what it said was a similar successful launch in 2009 with a nuclear test that prompted the U.N. Security Council to stiffen sanctions that it originally imposed in 2006 after the North's first nuclear test.

North Korea is banned from developing nuclear and missile-related technology under U.N. resolutions, although Kim Jong-un, the youthful head of state who took power a year ago, is believed to have continued the state's "military first" programs put in place by his late father, Kim Jong-il.

North Korea hailed the launch as celebrating the prowess of all three members of the Kim family to rule since it was founded in 1948.

"At a time when great yearnings and reverence for Kim Jong-il pervade the whole country, its scientists and technicians brilliantly carried out his behests to launch a scientific and technological satellite in 2012, the year marking the 100th birth anniversary of President Kim Il Sung," its KCNA news agency said. Kim Il Sung, the current leader's grandfather, was North Korea's first leader.

The United States condemned the launch as "provocative" and a breach of U.N. rules, while Japan's U.N. envoy called for a Security Council meeting. However, diplomats say further tough sanctions are unlikely from the Security Council as China, the North's only major ally, will oppose them.

"The international community must work in a concerted fashion to send North Korea a clear message that its violations of United Nations Security Council resolutions have consequences," the White House said in a statement.

U.S. intelligence has linked North Korea with missile shipments to Iran. Newspapers in Japan and South Korea have reported that Iranian observers were in the North for the launch, something Iran has denied.

Japan's likely next prime minister, Shinzo Abe, who is leading in opinion polls ahead of an election on Sunday and who is known as a hawk on North Korea, called on the United Nations to adopt a resolution "strongly criticizing" Pyongyang.

A North Korean Foreign Ministry spokesman reiterated that the rocket was a "peaceful project".

"The attempt to see our satellite launch as a long-range missile launch for military purposes comes from hostile perception that tries to designate us a cause for security tension," KCNA cited the spokesman as saying.

"STUMBLING BLOCK"

China had expressed "deep concern" prior to the launch which was announced a day after a top politburo member, representing new Chinese leader Xi Jinping, met Kim Jong-un in Pyongyang.

On Wednesday, its tone was measured, regretting the launch but calling for restraint on any counter-measures, in line with a policy of effectively vetoing tougher sanctions.

"China believes the Security Council's response should be cautious and moderate, protect the overall peaceful and stable situation on the Korean peninsula, and avoid an escalation," Chinese Foreign Ministry spokesman Hong Lei told journalists.

Bruce Klingner, a Korea expert at the Heritage Foundation, said: "China has been the stumbling block to firmer U.N. action and we'll have to see if the new leadership is any different than its predecessors."

A senior adviser to South Korea's president said last week it was unlikely there would be action from the United Nations and Seoul would expect its allies to tighten sanctions unilaterally.

Kim Jong-un, believed to be 29 years old, took power when his father died on December 17 last year and experts believe the launch was intended to commemorate the first anniversary of his death. The April launch was timed for the centennial of the birth of Kim Il Sung.

Wednesday's success puts the North ahead of the South which has not managed to get a rocket off the ground.

"This is a considerable boost in establishing the rule of Kim Jong-un," said Cho Min, an expert at the Korea Institute of National Unification.

There have been few indications the secretive and impoverished state, where the United Nations estimates a third of people are malnourished, has made any advances in opening up economically over the past year.

North Korea remains reliant on minerals exports to China and remittances from tens of thousands of its workers overseas.

Many of its 22 million people need handouts from defectors, who have escaped to South Korea, for basic medicines.

Given the puny size of its economy - per capita income is less than $2,000 a year - one of the few ways the North can attract world attention is by emphasizing its military threat.

It wants the United States to resume aid and to recognize it diplomatically, although the April launch scuppered a planned food deal.

The North is believed to be some years away from developing a functioning nuclear warhead although it may have enough plutonium for about half a dozen nuclear bombs, according to nuclear experts.

It has also been enriching uranium, which would give it a second path to nuclear weapons as it sits on big natural uranium reserves.

"A successful launch puts North Korea closer to the capability to deploy a weaponized missile," said Denny Roy, a senior fellow at the East-West Center in Hawaii.

"But this would still require fitting a weapon to the missile and ensuring a reasonable degree of accuracy. The North Koreans probably do not yet have a nuclear weapon small enough for a missile to carry."

The North says its work is part of a civil nuclear program although it has also boasted of it being a "nuclear weapons power".

(This story has been refiled to clarify reference to NORAD in paragraph five)

(Additional reporting by Jumin Park and Yoo Choonsik in SEOUL; David Alexander, Matt Spetalnick and Paul Eckert in WASHINGTON; Linda Sieg in TOKYO, Sui-Lee Wee and michael Martina in BEIJING,; Rosmarie Francisco in MANILA; Writing by David Chance; Editing by Raju Gopalakrishnan and Robert Birsel)

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Most Googled in 2012: Whitney, PSY, Sandy

LOS ANGELES (AP) — The world’s attention wavered between the tragic and the silly in 2012, and along the way, millions of people searched the Web to find out about a royal princess, the latest iPad, and a record-breaking skydiver.

Whitney Houston was the “top trending” search of the year, according to Google Inc.’s year-end “zeitgeist” report. Google‘s 12th annual roundup is “an in-depth look at the spirit of the times as seen through the billions of searches on Google over the past year,” the company said in a blog post Wednesday.

People around the globe searched en masse for news about Houston‘s accidental drowning in a bathtub just before she was to perform at a pre-Grammy Awards party in February.

Google defines topics as “trending” when they garner a high amount of traffic over a sustained period of time.

Korean rapper PSY’s “Gangnam Style” music video trotted into second spot, a testament to his self-deprecating giddy-up dance move. The video is approaching a billion views on YouTube.

Superstorm Sandy, the damaging storm that knocked out power and flooded parts of the East Coast in the midst of a U.S. presidential campaign, was third.

The next biggest trending searches globally were a pair of threes: the iPad 3 tablet from Apple Inc. and Diablo 3, a popular video game.

Rounding out the Top 10 were Kate Middleton, who made news with scandalous photos and a royal pregnancy; the 2012 Olympics in London; Amanda Todd, a Canadian teen who was found dead of an apparent suicide in October after being bullied online; Michael Clarke Duncan, the “Green Mile” actor who died of a heart attack in September at age 54; and “BBB12,” the 12th edition of “Big Brother Brasil,” a reality show featuring scantily clad men and women living together.

Some trending people, according to Google, were:

— Felix Baumgartner, an Austrian skydiver who became the first to break the sound barrier without a vehicle with a 24-mile plummet from Earth’s stratosphere;

— Jeremy Lin, the undrafted NBA star who exploded off the New York Knicks bench and sparked a wave of “Linsanity”;

— Morgan Freeman, the actor whose untimely death turned out not to be true.

The Internet also continued its rise as a popular tool for spreading addictive ideas and phrases known as “memes.” Remember LOL? If you don’t know what it means by now, someone may “Laugh Out Loud” at you.

This year, Facebook said its top memes included “TBH (To Be Honest),” ”YOLO (You Only Live Once),” ”SMH (Shake My Head).” Thanks to an endlessly fascinating U.S. presidential campaign, “Big Bird” made the list after Republican candidate Mitt Romney said he might consider cutting some funds for public broadcasting.

Yahoo said its own top-searched memes for the year included “Kony 2012,” a reference to the short film and campaign against Ugandan militia leader Joseph Kony; “stingray photobomb” for an unusual vacation snapshot that went viral; and “binders full of women,” another nod to Romney for his awkward description of his search for women cabinet members as Massachusetts’ governor.

And people were happy to pass on popular Twitter posts by retweeting them. According to Twitter, the year’s most popular retweets were President Barack Obama‘s “Four more years,” and Justin Bieber’s farewell to six-year-old fan Avalanna Routh, who died of a rare form of brain cancer: “RIP Avalanna. i love you”.

Gadgets News Headlines – Yahoo! News

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Man Builds Full-Scale Replica of Noah's Ark

People Pets

By Stephen M. Silverman

12/11/2012 at 02:15 PM EST

Johan Huibers and his ark

Peter Dejong/AP

He may have trouble finding two animals of every kind, but Johan Huibers of the Netherlands isn't one to be dissuaded.

After 20 years, the professional builder completed his goal of building a full-scale, fully-operational version of Noah's Ark, using Genesis, books 6-9, in The Bible as his guide.

Huibers converted cubits to modern measurements to pull off the feat, reports the Associated Press, leading to an impressive wooden vessel that is 427 feet long, 95 feet wide and 75 feet high.

But just to be clear, the Dutchman, a Christian, is not expecting a flood of Biblical proportions anytime soon.

"I had a call from American television," he told AP with a laugh. "This has nothing to do with the end of the Mayan calendar."

Instead, citing what The Bible predicts might be in store for Earth, Huibers says, "I want to make people question that so that they go looking for answers." He also hopes people will ultimately find salvation through God and eternal life.

And while the ark is not currently occupied with multitudes of four-legged creatures – though there are reportedly some plastic and stuffed replicas of larger species onboard for atmosphere – there is a small petting zoo with ponies, dogs, sheep, rabbits and exotic birds aboard the ship, which is moored just south of Rotterdam, as well as a restaurant and movie theater that can seat 50.

See more photos inside the ark on CNN.com.

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APNewsBreak: DA investigating Texas cancer agency

AUSTIN, Texas (AP) — The Texas prosecutor responsible for investigating public corruption among state officials said Tuesday that he has opened an investigation into the state's troubled $3 billion cancer-fighting agency.

Gregg Cox, director of the Travis County district attorney's public integrity unit, told The Associated Press that an investigation has begun into the Cancer Prevention and Research Institute of Texas. The agency also is under investigation by the Texas attorney general's office after an $11 million grant to a private company did not receive the proper review.

Cox said his unit, which prosecutes crimes related to the operation of state government, is beginning its investigation not knowing "what, if any, crime occurred" at CPRIT.

His announcement came on the same day that CPRIT said its executive director had submitted his resignation letter and amid escalating scrutiny over the management of the nation's second-biggest pot of cancer research dollars.

CPRIT has not been able to focus on fighting the disease due to "wasted efforts expended in low value activities" during the past tumultuous eight months, Executive Director Bill Gimson wrote in a resignation letter dated Monday. Gimson offered to stay on until January, and the agency's board must still approve his request to step down.

Gimson has led the state agency since it launched in 2009. But he fell under mounting criticism over the recent disclosure that an $11 million award to a private company was never reviewed. It was the second time this year that a lucrative taxpayer-funded grant instigated backlash and raised questions about oversight.

"Unfortunately, I have also been placed in a situation where I feel I can no longer be effective," Gimson wrote.

The Texas attorney general's office has said it is looking into CPRIT's $11 million grant to Dallas-based Peloton Therapeutics. An internal audit performed by the agency revealed that Peloton's proposal was approved for funding in 2010 without being reviewed by an outside panel.

Gimson said last week that Peloton's funding was the result of an honest mistake that happened when the agency was still young and in the process of installing checks and balances. Agency emails surrounding the Peloton grant are no longer available, Gimson said, and state investigators said they will work to find them.

Only the National Institutes of Health doles out more cancer research dollars than CPRIT, which has awarded more than $700 million so far. The agency's former chief science officer, Nobel laureate Alfred Gilman, resigned earlier this year over a separate $20 million award that Gilman claimed received a thin review. That led some of the nation's top scientists to accuse the agency of charting a politically-driven path.

___

Follow Paul J. Weber on Twitter: www.twitter.com/pauljweber

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Tech titans, "cliff" hopes push indexes up

NEW YORK (Reuters) - Rising shares in technology companies helped push major stock indexes up around 1 percent on Tuesday, as the S&P 500 reached its best levels since mid-October, recouping its post-election selloff.

A 3.1 percent gain in Apple Inc's stock lifted the Nasdaq, as the largest U.S. company by market value rebounded from a week in which investors took profits before a possible tax rise next year. Prior to Tuesday's trading, Apple shares had lost 25 percent from an all-time intraday high hit in September.

Other major tech stocks also rose. Texas Instruments gained 3.8 percent to $30.97 after bumping up its profit target late Monday. That helped other chipmakers rally, with the PHLX Semiconductor index <.sox> up 2 percent. Microsoft rose 1.8 percent to $27.44.

"I see a lot of buying in tech, and that's taking the whole market up with it," said Tom Donino, co-head of trading at First New York Securities in New York.

The Dow Jones industrial average <.dji> gained 112.57 points, or 0.85 percent, at 13,282.45. The Standard & Poor's 500 Index <.spx> was up 13.23 points, or 0.93 percent, at 1,431.78. The Nasdaq Composite Index <.ixic> rose 40.95 points, or 1.37 percent, at 3,027.91.

Retailers like luggage maker Tumi Holding Inc and Michael Kors Holding gained on Tuesday after a positive report from Goldman Sachs Equity Research. Tumi was up 4.1 percent to $21.80, and Michael Kors gained 2.6 percent, reaching $51.08.

Traders voiced cautious optimism as the pace of negotiations over the "fiscal cliff" quickened. However, representatives from both parties cautioned that an agreement remains uncertain.

Republican House Speaker John Boehner called on President Barack Obama to propose a counter-offer on Tuesday.

"I guess in our own dysfunctional way, there is progress," said Frank Davis, director of sales and trading at LEK Securities in New York.

"Since conversations are occurring, it clarifies at least they are taking some action. My personal gut is they'll jostle this into the holiday week and try to do a last minute push."

Lawmakers worked toward a deal to avoid a series of automatic tax hikes and spending cuts that would hurt U.S. economic growth next year.

The lack of demonstrable progress has kept investors from making aggressive bets in recent weeks.

Still, stocks have steadily marched higher on thin volume. The S&P 500 hovered around 1433.38 on Tuesday, retracing losses incurred in the first seven sessions after Obama's re-election. Gains were broad, with more than two shares rising for every one falling on the New York Stock Exchange and winners outpacing losers on the Nasdaq Stock Exchange by nearly three-to-one.

The U.S. Treasury is selling its remaining stake in insurer American International Group Inc . AIG's shares were up 4.7 percent at $34.94.

The Fed began a two-day policy-setting meeting on Tuesday. The central bank is expected to announce a new round of Treasury bond purchases when the meeting ends on Wednesday to replace its "Operation Twist" stimulus which expires at the end of the year.

(Editing by Kenneth Barry and Nick Zieminski)

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Egypt army seeks national unity as crisis mounts

CAIRO (Reuters) - Egypt's army chief called for talks on national unity to end the country's deepening political crisis after a vital loan from the IMF was delayed and thousands of pro- and anti-government demonstrators took to the streets.

The meeting, scheduled for Wednesday afternoon, was called in response to a destabilizing series of protests since President Mohamed Mursi awarded himself sweeping powers on November 22 to push through a new constitution shaped by his Islamist allies in a referendum on Saturday.

"We will not speak about politics nor about the referendum. Tomorrow we will sit together as Egyptians," armed forces chief and Defense Minister Abdel Fattah al-Sisi said at a joint gathering of army and police officials.

An aide said Mursi had supported the call for talks. The Muslim Brotherhood announced it would be there, while the main opposition coalition said it would decide on Wednesday morning whether to attend.

Earlier, the finance minister disclosed that a $4.8 billion International Monetary Fund loan, a cornerstone of Egypt's economic recovery hopes, would be delayed until next month.

Mumtaz al-Said said the delay was intended to allow time to explain a widely criticized package of economic austerity measures to the Egyptian people.

On Monday Muris backed down on planned tax rises, seen as essential for the loan to go ahead, but which the opposition had fiercely criticized.

"Of course the delay will have some economic impact, but we are discussing necessary measures (to address that) during the coming period," Said told Reuters, adding: "I am optimistic ... everything will be well, God willing."

Prime Minister Hisham Kandil said the measures would not hurt the poor. Bread, sugar and rice would not be touched, but prices of cigarettes and cooking oil would go up and fines would be imposed for public littering. In a bid to rebuild consensus, he said there would be a public consultation about the program next week.

In Washington, the IMF said Egypt had asked for the loan to be postponed "in light of the unfolding developments on the ground". The Fund stood ready to consult with Egypt on resuming discussions on the stand-by loan, a spokeswoman said.

GUNMEN OPEN FIRE

On the streets of Cairo, tensions ran high after nine people were hurt when gunmen fired at protesters camping in Tahrir Square, according to witnesses and Egyptian media.

The opposition has called for major protests it hopes will force Mursi to postpone the referendum. Thousands gathered outside the presidential palace, whose walls are scrawled with anti-Mursi graffiti.

A bigger crowd of flag-waving Islamist Mursi backers, who want the vote to go ahead as planned on Saturday, assembled at a nearby mosque, setting the stage for further street confrontations in a crisis that has divided the nation of 83 million.

In Egypt's second city of Alexandria, thousands of rival demonstrators gathered at separate venues. Mursi's backers chanted: "The people want implementation of Islamic law", while his opponents shouted: "The people want to bring down the regime". Others cities also witnessed protests.

The upheaval following the fall of Hosni Mubarak last year is causing concern in the United States, which has given Cairo billions of dollars in military and other aid since Egypt, the Arab world's most populous nation, made peace with Israel in 1979.

State Department spokeswoman Victoria Nuland emphasized "deep concerns" over the situation in Egypt and repeated calls on protesters to demonstrate peacefully and on security forces to act with restraint.

"Key stakeholders in Egypt are raising real and legitimate questions, both about the substance and about the process for moving to a constitutional referendum this weekend," Nuland told a news briefing. She declined to be drawn on whether Washington believed the referendum itself should be postponed.

The turmoil has also put a big strain on the Egyptian economy, sending foreign currency reserves down to about $15 billion, less than half what they were before the revolt two years ago as the government has sought to defend the pound.

"Given the current policy environment, it's hardly a surprise that there's been a delay, but it is imperative that the delay is brief," said Simon Williams, HSBC economist in Dubai. "Egypt urgently needs that IMF accord, both for the funding it brings and the policy anchor it affords."

The IMF deal had been seen as giving a seal of approval to the government's economic plans, vital for drawing more cash into the economy to ease a crushing budget deficit and stave off a balance of payments crisis.

MASKED ATTACKERS

In central Cairo police cars surrounded Tahrir Square, the first time they had appeared in the area since shortly after Mursi awarded himself the sweeping temporary powers in a move that touched off widespread protests.

The attackers, some masked, also threw petrol bombs that started a small fire, witnesses said.

"The masked men came suddenly and attacked the protesters in Tahrir. The attack was meant to deter us and prevent us from protesting today," said John Gerges, a Christian Egyptian who described himself as a socialist.

The latest bout of unrest has so far claimed seven lives in clashes between the Muslim Brotherhood and opponents who gathered outside Mursi's presidential palace.

But the Republican Guard, which protects the palace, has yet to use force to keep protesters away from the building, now ringed with tanks, barbed wire and concrete barricades.

The army has told all sides to resolve their differences through dialogue. For the period of the referendum, the army has been granted powers by Mursi allowing it to arrest civilians.

In statement issued after rights groups criticized the army's new police powers, the presidency said anyone arrested by the military during the referendum would face civil rather than military courts. It said the army's new role would only last until results are declared after Saturday's referendum.

Leftists, liberals and other opposition groups say the hastily arranged constitutional referendum is polarizing the country and could put it in a religious straitjacket.

Islamists have urged their followers to show support for Mursi and for a referendum they feel sure of winning.

(Additional reporting by Tamim Elyan and Edmund Blair in Cairo, and Andrew Quinn in Washington; Writing by Giles Elgood; Editing by Will Waterman and David Stamp)

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