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* Islamist militants kill 24 Egyptian police in Sinai

* At least 36 prisoners die in disputed circumstances

* EU diplomats meet to review options

* Saudi Arabia cautions West not to pressure Cairo

By Alistair Lyon and Asma Alsharif

CAIRO, Aug 19 (Reuters) – Suspected Islamist militants

killed at least 24 Egyptian policemen on Monday in the Sinai

peninsula, where attacks on security forces have multiplied

since the army overthrew President Mohamed Mursi on July 3.

Three policemen were also wounded in the grenade and

machinegun attack near the north Sinai town of Rafah on the

border with Israel, medical and security sources said.

The attack underlined the challenges facing Egypt’s new

rulers, locked in a struggle with Mursi’s Muslim Brotherhood in

which at least 850 people have been killed since the security

forces opened fire at pro-Mursi protest camps last week.

The authorities portray their campaign as a fight against

terrorism. The Brotherhood renounced violence decades ago and

denies any links with armed militants, including those in Sinai

who gained strength since autocrat Hosni Mubarak fell in 2011.

Mounting insecurity in Sinai also worries the United States

because the area lies next to Israel and the Hamas-ruled Gaza

Strip, as well as the Suez Canal.

At least 36 Islamists died in government custody on Sunday,

in an incident that the Brotherhood described as “murder” and

the authorities said was a thwarted jailbreak.

“The murders show the violations and abuses that political

detainees who oppose the July 3 coup get subjected to,” said the

Brotherhood.

The Interior Ministry said 36 Brotherhood detainees had been

suffocated by tear gas during an attempted prison breakout near

Cairo. A legal source said 38 men had died from asphyxiation in

the back of a crammed police van.

Egypt’s descent into the bloodiest internal conflict in its

modern history is causing global jitters, but no consensus on

how to respond has emerged in the West or the Arab world.

European Union diplomats were due to meet in Brussels to

review how best to leverage some 5 billion euros ($6.7 billion)

of promised grants and loans, looking to apply pressure on

Cairo’s army-backed government to find a compromise.

DISCORD OVER AID

A senior EU official who asked not to be identified said the

United States, Europe and Gulf Arab states had only limited

influence on the generals now calling the shots in Egypt.

The United States, an ally of Egypt since it made peace with

Israel in 1979, has postponed delivery of four F-16 fighters and

scrapped a joint military exercise, but has not halted its $1.55

billion in annual aid, spent mostly on U.S.-made arms supplies.

However, Republican and Democrat U.S. lawmakers, some of

them reversing the stances they had espoused before last week’s

crackdown in Egypt, said on Sunday the aid should be suspended.

“For us to sit by and watch this happen is a violation of

everything that we stood for,” said Senator John McCain, a

former Republican presidential nominee.

Saudi Arabia, another U.S. ally, urged Washington and Europe

not to penalise Cairo for its drive to crush the Muslim

Brotherhood, whose political ambitions arouse mistrust in

several Gulf Arab states, with the exception of Qatar.

Egyptian Foreign Minister Nabil Fahmy sought to pre-empt any

attempt to use aid flows as a lever by saying he would look at

all such assistance to see “what aid is being used to pressure

Egypt and whether this aid has good intentions and credibility”.

Hundreds of Brotherhood supporters have been arrested to try

to end weeks of protests, but the group has refused to yield,

staging rallies in Cairo and Alexandria on Sunday.

The prime minister has proposed disbanding the 85-year-old

Brotherhood, which has won all of the five votes held in Egypt

since the popular revolt that toppled Mubarak in 2011.

In his first public comments since hundreds of people were

killed when security forces cleared two pro-Mursi camps in Cairo

on Wednesday, army chief Abdel Fattah el-Sisi said he would not

“stand by silently watching the destruction of the country”.

(Reporting by Cairo bureau; Editing by Peter Graff)