By Edmund Blair
CAIRO (Reuters) - Egyptian President Mohamed Mursi has driven back the biggest challenge to civilian rule by dismissing top generals and tearing up their legal attempt to curb his power in a bold bid to end 60 years of military leadership.
Taking the country by surprise, Mursi pushed Field Marshal Hussein Tantawi into retirement. The 76-year-old figurehead of the old order, he took charge of the biggest Arab nation when Hosni Mubarak fell last year and remained head of its powerful, ad hoc military council after the Islamist was elected in June.
The armed forces, which had supplied Egypt's presidents for six decades after ousting the monarchy, have shown no sign of challenging the move announced late on Sunday, though a senior judge did speak up on Monday to question Mursi's right to act.
Lower-ranking generals and other officers may, however, support a change that shifts power in the military to a new generation. One analyst said Mursi mounted a "civilian counter-coup" coordinated with an internal putsch in the armed forces.
State media cited a military source dismissing talk of any "negative reactions" by the generals to a decision which, given their earlier dissolution of parliament, now hands Mursi what liberal critic Mohamed ElBaradei described as "imperial powers".
Mursi and his long-suppressed Muslim Brotherhood had been expected to roll back the influence of the army, a close ally of Washington and recipient of $1.3 billion in annual U.S. military aid; but many had predicted a process that would take years of delicate diplomacy to avoid sparking a military backlash.
Instead, just six weeks after he was sworn into office and seemingly taking advantage of a military debacle on the Sinai border that embarrassed the army, Mursi announced sweeping changes in the high command and reshaped Egypt's politics.
"Mursi settles the struggle for power," said a headline in the state-owned Al-Akhbar daily, a newspaper that is traditionally a mouthpiece for the army-backed establishment.
"Mursi ends the political role for the armed forces," wrote the independent Al-Masry Al-Youm. Another, Tahrir, called it the "president's revolution against the military".
Short of an outright coup d'etat, the army may now have few political avenues to reverse Mursi's decisions - if it wanted to. But its vast economic interests and history of influence suggests its wishes cannot go completely ignored by Mursi.
Apart from some demonstrations of support for Mursi late on Sunday, there was little reaction on the streets to the president's decision. The stock market reaction was muted, with the benchmark index rising 1.5 percent.
As well as ordering the retirement of Tantawi, the head of the Supreme Council of the Armed Forces (SCAF) and Mubarak's defense minister for 20 years, and Chief-of-Staff Sami Enan, 64, Mursi also cancelled a decree issued by the military before his election which had curbed the power of the presidency.
Mursi appointed General Abdel Fattah al-Sisi, 57, from military intelligence, to lead the army and become defense minister. Enan was replaced by General Sidki Sobhi, 56, who led the Third Field Army based in Suez, on the border with Sinai.
"What we saw ... in Egypt increasingly seems like a mix of a civilian counter-coup and a coordinated coup within the military itself," wrote Shadi Hamid of the Brookings Doha Center.
The response among the high command was subdued. SCAF member General Mohamed el-Assar, who becomes deputy defense minister, told Reuters Mursi's decision was based on "consultation" with Tantawi and the rest of the military council.
There was also little immediate public reaction from the United States, a key supporter of Cairo's military rulers since they signed a peace treaty with Israel in 1979:
"It's too soon to say what the potential implications might be," one senior U.S. official said in Washington.
Tantawi and Enan were appointed advisers and given honors, suggesting they will not face the same fate as Mubarak, once air force commander, who was jailed for life aged 84.
"I did not mean to send a negative message about anyone, but my aim was the benefit of this nation," Mursi said on Sunday during a holiday speech that was pointedly diplomatic.
His spokesman called it a "sovereign" decision, "taken by the president to pump new blood into the military establishment in the interests of developing a new, modern state".
Mursi had already shown he was ready to confront the military. Last month, he challenged the army's decision, based on a court ruling in June, to dissolve the Islamist-led parliament. Mursi's decree was then itself reversed by a court.
There was no immediate sign of any legal challenge to Mursi's cancellation of the constitutional declaration by the army that had curbed presidential powers before he took office.
By sweeping aside that declaration, Mursi, rather than the army, will hold legislative authority in the absence of parliament. It also means the president can appoint an assembly to draw up the new constitution if the panel now working on it fails. That body's composition is being challenged in court.
ElBaradei, a former U.N. diplomat who has been critical of both the Brotherhood and the army, wrote: "With military stripped of legislative authority and in absence of parliament, president holds imperial powers. Transitional mess continues."
However, a member of the Supreme Constitutional Court signaled the potential for yet another legal challenge as Egypt's leaders make up a new politic system on the hoof.
Noting Mursi had torn up the very constitutional document under which he himself was sworn in, the court's Tahany El-Gebaly told state-owned news portal Ahram Online: "A president has no power to abrogate a constitution, even a temporary one."
Some liberal rivals of the Muslim Brotherhood have voiced alarm at the growing might of the Islamists, whom they fear could turn their backs on Western alliances and impose religious law on a tolerant society with a big Christian minority. "Forget Tantawi and Enan," a critic on Twitter, Nervana Mahmoud, wrote. "This is not a soft coup, but a declaration of Islamic state."
But many liberals are equally concerned by the continuing power exercised by the army. The April 6 youth movement, which galvanized the anti-Mubarak uprising, said Mursi's move was a "first step towards establishing a civilian state".
Against a background of legal wrangling, Mursi has also appointed a judge, Mahmoud Mekky, as his vice president.
Mursi's election victory over a former general prompted renewed concerns in Israel and the West about alliances with Egypt, following the Islamists' sweep in parliamentary voting.
Pledging to uphold democratic accountability and to stand by Cairo's treaties, Mursi has shown impatience with the military before. After Islamist militants killed 16 border guards near the Sinai frontier with Israel and the Gaza Strip, he sacked the intelligence chief. On Sunday, officials said Egyptian troops had killed five more militants in a crackdown in the region.
(Additional reporting by Yasmine Saleh and Tom Pfeiffer; Writing by Edmund Blair; Editing by Alastair Macdonald)