Things just got a lot dicier in Egypt for President Mohammed Morsi and his Muslim Brotherhood government.

A spokesman for the army read out a statement on national TV that threatened intervention in 48 hours unless Morsi could resolve the crisis.

Millions of Egyptians poured into the streets on Sunday protesting Moris's rule and that of the Muslim Brotherhood. When news of the ultimatum reached them, the crowds erupted in cheers. The army has always been very popular in Egypt but this ultimatum probably does not mean there will be a military coup. Instead, the army will lay out a program of transition that may include Morsi's resignation.

But Morsi has rejected the ultimatum and offered his own plan for reconciliation.

"If the demands of the people are not met in this period... [the armed forces] will announce a future roadmap and measures to oversee its implementation," it said in the statement welcomed by cheers and celebrations from Mursi's opponents still camped out in Cairo's Tahrir Square.

In response, the presidency said the army declaration had not been cleared by the president and could cause confusion, denouncing any declaration that would "deepen division" and "threaten the social peace."

Mursi was consulting "with all national forces to secure the path of democratic change and the protection of the popular will," it added.

"The civil democratic Egyptian state is one of the most important achievements of the January 25 revolution," said the presidency, referring to the 2011 uprising that toppled dictator Hosni Mubarak.

"Egypt will absolutely not permit any step backward whatever the circumstances," it added.

Tamarod, the grassroots campaign behind Sunday's massive protests against Mursi, also hailed the statement by the armed forces which it said had "sided with the people."

It "will mean early presidential elections," Tamarod's spokesman Mahmud Badr told reporters, according to AFP.

But Mursi's rejection of the army ultimatum has raised the stakes in the country's political crisis, which has resulted in 16 people being killed in protests on Sunday, including eight in clashes between supporters and opponents of the president outside the Cairo headquarters of the Muslim Brotherhood.

Meanwhile, Morsi's foriegn minister has resigned as have two of the president's spokesmen. Earlier, the prime minister rejected the resignations of 5 cabinet ministers.

We are about to see how far the Muslim Brotherhood will go to maintain power. The Brotherhood can still turn out their Islamist supporters, although probably not in the numbers that helped overthrow Mubarak. If the army forces out Morsi, you might expect to see Egyptian civil society put to its sternest test yet with supporters of the Muslim Brotherhood venting their displeasure.

Egypt may yet fall into absolute chaos which would force a military takeover. That would play into the hands of the Brotherhood who would then be in the familiar position of opposing the government and military. Egypt is on the cusp of being a failed state which would be ruinous to American interests in the Middle East and be a boost to Iran and Turkey who both seek regional hegemony.

 President Obama's support for the Islamists in Egypt may turn out to be the biggest foreign policy blunder in decades.