In a major move to dismantle the vestiges of the Mubarak era, Egypt's military on Sunday dissolved the Parliament and suspended the country's constitution, accepting the major demands of the protesters.
The Supreme Military Council, that took over the reins of the administration after Hosni Mubarak bowed out under public pressure ending his 30-year reign, said it would stay in power for six months or until the elections are held to determine the next government of Egypt.
It also fixed a September date for elections that will eventually decide the country's next government.
The move to dissolve the parliament that is comprised mostly of Mubarak loyalists along with the suspension of the constitution meets two major demands of the demonstrators camping at the Tahrir Square since 20 days.
The parliament that was elected last year had a majority of members of the National Democratic Party of Mubarak and was regarded as illegitimate by many people as widespread rigging was believed to have led to the ruling party's overwhelming victory and the opposition's wipe out.
In a communique read out on national television, the military council also announced that it would constitute a panel to amend the constitution to meet the demands of reform by the people, before submitting the changes to a popular referendum.
Sunday's steps are the first major measures to remove the Mubarak-era relics of power after the erstwhile regime was overturned by a mass uprising.
The caretaker military government had on Saturday promised to oversee a peaceful transition to democracy but many protesters had said they wanted to see more concrete measures before they can return to their daily life.
In fact, the Army, which tried to clear the Tahrir Square on Sunday morning, was met with resistance, with many protesters choosing to stay put until further guarantees from the new leadership.
Meanwhile, Prime Minister Ahmed Shafiq said that his government's first priority was to restore peace and normalcy to the country which has witnessed dramatic events over the past fortnight.
"Our main concern now as a cabinet is security -- we need to bring back a sense of security to the Egyptian citizen," he said.
He said the country's financial position was "solid and cohesive" but cautioned that the present instability should not continue. Shafiq also pledged to "return rights to the people and fight corruption".
The Prime Minister's comments came after the cabinet held its first meeting after Mubarak's departure from power.
He also said that the former President is still in the Red Sea resort of Sharm al-Sheikh, amid contradictory reports about his whereabouts.
Earlier in the day, scuffles broke out between the soldiers and some of the protesters at the Tahrir Square after the Army tried to take control of the area.
Though hundreds of protesters still remained in the Square, life was inching towards normalcy in other parts of the country as markets and businesses reopened and Egyptians went back to daily work on their first working day post the fall of Mubarak.
Protest organisers had already threatened more rallies if the Supreme Military Council that is in charge of the government, fails to accept their agenda for reform.
Though the caretaker leadership had promised that it will lift the emergency and oversee a peaceful transition to democracy, it had not laid out any timetable for these steps.
The protesters had refused to leave the Square as they said nothing had been implemented as yet.
The spokesman of the Egyptian cabinet, appointed when Mubarak was still in office, said that the cabinet will not undergo a major reshuffle and will stay to oversee a political transformation in the coming months.
The Supreme Military Council had in a communique on Saturday vowed to hand over power to an elected, civilian government in a peaceful transition.
According to the state television, prosecutors also opened an investigation into three former ministers of the Mubarak regime after the new government had imposed a travel ban on officials to make sure they do not flee.
Travel ban was imposed on the much-despised former information minister Anas el-Fekky, who resigned on Saturday in the midst of accusation of waging a media campaign against the protesters.
Travel ban was also imposed on former prime minister Ahmed Nazif and former interior minister Habib al-Adli, who were both sacked by Mubarak before he stepped down.
Egypt was overcome by joy after Mubarak stepped down, bringing an end to his three-decade of iron-fisted rule. The initial euphoria has now made way for concerns about the country's future and the process of democratisation.
However, despite the uncertainty, celebrations have refused to die down in the capital and other cities.