By Maggie Fick and Shaimaa Fayed
CAIRO (Reuters) - The chances for a negotiated end to Egypt's political crisis looked to have hit the rocks on Tuesday with the army-installed government reportedly ready to declare that foreign mediation efforts had failed.
State-run Al-Ahram newspaper, citing official sources, said the government would make an announcement to that effect soon.
It would also declare that Muslim Brotherhood protests against the army's overthrow of President Mohamed Mursi were non-peaceful - a signal that the government intends to end them by force.
The report appeared hours after two senior U.S. senators on a mediation mission said they considered Mursi's removal to have been a military coup - causing an uproar in the Egyptian media and drawing a strong riposte from the acting president.
The Republican senators - Lindsey Graham and John McCain - also called on the military to release political prisoners and start a national dialogue to return Egypt to democratic rule.
State television cited acting President Adly Mansour as calling McCain's comments "an unacceptable interference in internal policies".
Many Egyptian private TV stations' talk shows also reacted furiously. Lamis al-Hadid of CBC TV called them a "big insult to Egypt and its people".
Egypt has been in turmoil since Mursi's overthrow on July 3, following huge demonstrations against his rule.
At least one person was killed and 35 were injured in clashes between Mursi's supporters and opponents in the northern port city of Alexandria late on Tuesday, a security source said.
The country's first freely elected president, Mursi is now being detained at an undisclosed location and thousands of his supporters remain camped out at two protest sites in Cairo.
Envoys from the United States, the European Union, Qatar and the United Arab Emirates have been pushing to resolve the crisis and avert further bloodshed between Mursi's backers and the security forces.
But the al-Ahram report dashed hopes of a breakthrough, with the government casting the blame on what it called the intransigence of Mursi's Muslim Brotherhood.
The newspaper said the interim government would announce "the failure of all U.S., European, Qatari and UAE delegations in convincing the Brotherhood of a peaceful solution to the current crisis".
The government had allowed the envoys to visit jailed Brotherhood leaders in order to give a peaceful solution a chance.
But it now considered Mursi's overthrow a fait accompli and would proceed with its own "road map" for elections in nine months, al-Ahram said.
Asked to comment on the newspaper report, a senior U.S. State Department official in Washington said, without confirming that the talks had broken down: "We are still committed to our ongoing efforts at calming tensions, preventing violence and moving toward an inclusive political process."
The interim Egyptian government's announcement would set the stage for a showdown with pro-Mursi protesters camped out at Rabaa and al-Nahda in Cairo, saying they were non-peaceful gatherings.
The security forces last week promised the protesters safe exit if they left the camps, but warned their patience was limited.
They may, however, hold off any action until after Sunday, the end of Eid al-Fitr, the holiday that marks the close of the Muslim fasting month of Ramadan.
MISSION NOT ACCOMPLISHED
The latest developments made for a remarkable end to Graham and McCain's mission, undertaken at U.S. President Barack Obama's request to help resolve the crisis in a country that is instrumental in Washington's Middle East policy.
After meeting army chief General Abdel Fattah al-Sisi, interim Vice President Mohamed ElBaradei and interim Prime Minister Hazem el-Beblawi, Graham told a news conference: "The people who are in charge were not elected. The people who were elected are in jail. The status quo is not acceptable."
They had also appealed to the Brotherhood, many of whose leaders have been jailed, including Mursi, to avoid resorting to violence and to join the dialogue.
But it was the description of Mursi's overthrow as a coup that hit a raw Egyptian nerve.
The definition is hotly disputed by the rival sides, with the military and its civilian supporters saying it was acting at the behest of millions of Egyptians who had taken to the streets to demand Mursi leave office.
The word coup, which U.S. officials had studiously avoided, could under U.S. law trigger a cutoff of the $1.3 billion U.S. military aid Egypt receives each year.
However McCain did say that "cutting off aid would be the wrong signal at the wrong time."
A spokesman for the interim government, Sherief Shawki, told Reuters it would stick by its transition plan. He also rejected the call to release jailed Brotherhood members, saying they would be dealt with by the courts.
Mursi took power in June 2012, 16 months after the overthrow of U.S.-backed strongman Hosni Mubarak, who had ruled for nearly 30 years.
Fears he was trying to establish an Islamist autocracy, coupled with a failure to ease economic hardships afflicting most of Egypt's 84 million people, led to mass street demonstrations, triggering the army move.
Almost 300 people have been killed in political violence since the overthrow, including 80 shot dead by security forces on July 27.
McCain said the senators also met members of Mursi's Freedom and Justice Party, the political arm of the Muslim Brotherhood.
On Monday, U.S. Deputy Secretary of State William Burns and European Union envoy Bernardino Leon met jailed Brotherhood deputy leader Khairat El-Shater in the prison where he is held.
They tried to persuade him to recognize that there was no realistic prospect of Mursi being reinstated and to accept a political compromise. A Brotherhood spokesman said Shater had insisted they should be talking to Mursi and the only solution was the "reversal of the coup".
(Writing by Angus MacSwan in Cairo; Editing by Stacey Joyce)