By Tom Perry and Alastair Macdonald
CAIRO (Reuters) - Egypt does not want war with Ethiopia but will keep "all options open", President Mohamed Mursi said on Monday, turning up the heat in a dispute over a giant dam Addis Ababa is building across the Nile.
In a televised speech to cheering Islamist supporters, Mursi voiced understanding for the development needs of poorer nations upstream in the Nile basin, but rammed home in emotive language that Egyptians will not accept any reduction in the flow of the river on which their civilization has been based for millennia.
Bellicose rhetoric, including talk of military action by Egyptian politicians last week, had raised concerns of a "water war" between Africa's second and third most populous states.
But Mursi, for whom the dispute provides an opportunity to rally Egyptians behind him after a divisive first year in power, also appeared to leave room for compromise.
He did not renew an Egyptian call - flatly rejected by Ethiopia last week - for work to stop at the dam but said further study on its impact was needed.
Describing Ethiopia as a "friendly state", he said Cairo was pursuing all political and diplomatic avenues for a solution.
Egypt's foreign minister is to visit Addis Ababa to discuss the project for Africa's biggest hydro power plant. Announced two years ago, engineers made a notable advance late last month.
"Egypt's water security cannot be violated in any way," Mursi said. "As head of state, I confirm to you that all options are open." He later added: "We are not calling for war, but we will never permit our water security ... to be threatened."
Drawing on an old Egyptian song about the Nile, he said: "If it diminishes by one drop then our blood is the alternative."
Cairo had no objection to "development projects in the Nile Basin states", he added, "but on condition that those projects do not affect or damage Egypt's legal and historical rights".
Egypt, whose fast-growing population of 84 million uses almost all of the Nile's supply that reaches them to meet their needs, cites colonial-era treaties guaranteeing it the lion's share of the water to defend its position. Ethiopia, the second most populous state in Africa, says those claims are outdated.
Other African states south of the historic frontier of the Muslim Arab world - notably Uganda, Kenya, Tanzania, Burundi, Rwanda and Democratic Republic of Congo - are also anxious to develop the water resources of the Nile Basin.
Ethiopia insists the Grand Renaissance Dam an Italian firm is building on the Blue Nile near the Sudanese border will generate electricity that it can export and will not reduce the long-term flow of the Nile, once its huge reservoir is filled.
It says it does not plan to use the water for irrigation.
But Egypt expressed surprise and alarm when engineers began major work late last month to divert the river in order to start key parts of the site, a portion of which is already complete.
Sudan, which like Ethiopia already has dams of its own on the Nile river system, has given its support to the project, saying it would benefit from electricity. But Egypt, whose own major barrages on the Nile include the landmark Aswan Dam, has raised concerns about its safety and effect on water flow.
Mursi said Egypt had carried out studies that showed "negative consequences" from building the Renaissance Dam.
Mursi faces a planned mass protest by non-Islamist groups on June 30, the anniversary of his election and he called on his opponents to forget their differences to safeguard the Nile. He was ready to "go to everyone", to reach out to those who have snubbed his previous calls for national reconciliation talks.
Yasser El-Shimy, Egypt analyst for the International Crisis Group, said: "Mursi is addressing the concerns of Egyptians regarding their water supplies, while sending a blunt message to Ethiopia and other Nile Basin countries Cairo takes this issue quite seriously. He also sought to sound presidential and well-supported by political allies ahead of the June 30 protests."
Egypt's military rulers, notably in the 1970s but also later, warned at times of military action if Ethiopia threatened water resources. Last week, Ethiopia summoned the Egyptian ambassador after politicians in Cairo were shown on television suggesting military action or supporting Ethiopian rebels.
The possible downstream effects of the $4.7-billion dam have been disputed and full details are unclear. Despite its poverty, Ethiopia insists it can fund the project and has been aided by a $1-billion loan from China to build power transmission lines.
While letting water through such dams - of which Egypt, Sudan and Ethiopia already have several - may not reduce its flow greatly, the filling of the reservoir behind any new dam means cutting the river's flow for a time. Evaporation from reservoirs can also permanently reduce water flowing downstream.
Earlier on Monday, Egyptian Prime Minister Hisham Kandil told parliament more time was needed to study Ethiopia's project and for dialogue with Sudan and Ethiopia on the best design for the dam and how to fill its reservoir without reducing flow.
(Editing by Andrew Heavens)