By Marwa Awad
CAIRO (Reuters) - Dozens of democracy activists including 16 Americans go on trial in Egypt Sunday in a politically charged case which has set off a crisis in relations between Cairo and Washington and threatened $1.3 billion in annual U.S. military aid.
Forty-three foreign and Egyptian non-profit workers - including the son of the U.S. transportation secretary - are accused of receiving illegal funds from abroad and carrying out political activities unrelated to their civil society work.
A senior U.S. official said Washington and Cairo were holding what he described as "intense discussions" to resolve the crisis within days.
Secretary of State Hillary Clinton, who arrived in the Moroccan capital after visits to Algeria and Tunisia, has met Egypt's foreign minister Mohamed Kamel Amr twice in the last three days, the official said on condition of anonymity.
Rights campaigners say the case is retaliation by Egypt's ruling generals against pro-democracy groups that have been among the army's harshest critics since it took power when Hosni Mubarak was overthrown a year ago.
"The whole basis of this case is unfair," an Egyptian activist working for one of the organizations told Reuters.
It was unclear whether all of the accused - who are banned from leaving Egypt pending trial - would appear in court.
A number of them were already abroad when the ban was placed, and some of those who remained in Egypt have taken refuge in the U.S. embassy in Cairo.
The U.S. pro-democracy groups whose staff have been charged deny they have done anything illegal. They say the crackdown is an attempt by Egypt's military rulers to derail democracy.
Egypt says the case is a judicial matter and all groups must heed Egyptian law.
Negad al-Borai, a lawyer representing the accused in Cairo, said the charges refered only to a short period in the groups' activities and could therefore be argued against.
"The charges made involve only the period from March 2011 to December 2011," he told Reuters. "These groups have applied for permits before that period."
Some Egyptian officials have linked the funding of civil society initiatives to a U.S. plot to undermine Egypt's sovereignty - accusations the United States and the civil society workers deny.
Among those accused is Sam LaHood, Egypt director of the International Republican Institute and the son of the U.S. transportation secretary.
The crisis escalated on December 29 when Egyptian authority swooped the offices of American groups International Republican Institute and the National Democratic Institute, confiscating documents and computers and cash on the premises.
The government and the ruling military council say the case was initiated by the judiciary and is out of their hands.
(Additional reporting by Arshad Mohammed in Rabat, Writing by Marwa Awad Editing by Maria Golovnina)