In a dramatic U-turn, Egypt's Islamist President Muhammed Mursi has annulled a controversial decree that had granted him Pharaoh-like powers, even as he rejected opposition demands to delay next week's referendum on a new constitution.
In a major sign of compromise, Mursi revoked the controversial decree that had granted him sweeping powers, but decided that the referendum on the draft constitution would go ahead as planned on December 15.
President Mursi's dramatic U-turn came after a "national dialogue" held between political leaders which continued after late midnight.
The constitutional referendum will be held on its previously specified date of December 15 and the constitutional declaration issued by President Mursi on November 22 has been largely cancelled, Mohamed Selim al-Awa, an Islamist politician and adviser to Mursi, announced.
The new constitutional declaration however will be immune from judicial appeal.
According to the new declaration, if a majority of Egyptians vote against the draft constitution, then a new Constituent Assembly will be elected in three months, and will have six months to draft a new one.
The main opposition National Salvation Front on Sunday rejected the referendum on the draft constitution and called for mass street protests on Tuesday.
"We do not recognise the draft constitution because it does not represent the Egyptian people," it said in a statement. "We reject the referendum which will certainly lead to more division and sedition," he said.
Islamist movements, including Muslim Brotherhood, announced that they would also hold a rival demonstration on Tuesday.
Mursi, meanwhile, asked the military to maintain law and order and provide security to state institutions. He also granted the military the power to arrest civilians.
The cancellation of the decree, which put Mursi's decisions above judicial oversight, was not retroactive, meaning any decisions he made since its announcement still stand.
The move comes after a week of protests against the referendum and constitutional declaration that lead to violent clashes between his supporters and opponents that killed at least seven people and injured nearly 700 others.
The new declaration, Awa said, would not remove judicial oversight of Mursi's decisions, but the President is still tasked with protecting the revolution and its causes, and his appointment of new Prosecutor General Talaat Ibrahim Abdallah will stand.
The present political turmoil began after President Mursi granted himself absolute powers through the November 22 decree that had put his decisions beyond judicial review, a move which gained him titles like "dictator" and "Pharaoh".
The new declaration also reaffirmed the retrial of figures responsible for protester deaths in the uprising against former President Hosni Mubarak and called for investigations into the deaths of those who were killed in last week's clashes in front of the presidential palace.
In the original declaration, Mursi had stated that Mubarak regime figures would be retried for the deaths of protesters nearly two years ago in the January 25 uprising.
Egypt's Constituent Assembly on November 30 in a marathon session approved a draft constitution imposing Islamic values, a move opposed by Liberals as an attempt to restrict freedom of speech and religion in the country.
According to Egyptian state TV, the articles passed, stipulated that Islam is the religion of the state, and the principles of Sharia, or Islamic law, are the "main source of legislation".
Mursi then decided to hold a referendum on the controversial draft constitution on December 15, a move that sparked further outrage in the deeply polarised country.
Khaled Dawood, the spokesman for the National Salvation Front, the aggregation of opposition parties in Egypt, said annulling the decree was "relatively meaningless".
"The key issue of securing the process of adapting of the constitution is done," he was quoted by Al-Jazeera as saying.
Ayman Nour, an opposition leader who attended the meeting at the palace, described the cancellation of the decree as a positive step.
"(It) has opened the door to a possible solution to a national crisis and may calm the situation down," he said.