Egyptian President Hosni Mubarak, seeking to take advantage of Israel's demand for a sharp increase in U.S. aid, wants an extra $870 million for his economically troubled nation, according to Egyptian and State Department sources.
The Egyptian leader is scheduled to arrive here today to start a five-day visit, during which he will meet with President Reagan to discuss his increasing aid needs as well as his initiative to revive the long-stalled Middle East peace process, beginning with discussions here between a Jordanian-Palestinian delegation and the U.S. government.
The request for $870 million this fiscal year, submitted by Egyptian Foreign Minister Asmet Abdel-Meguid last month, is $70 million more than the Israelis are presently expecting in emergency assistance this year and comes atop the nearly $1 billion increase Egypt is seeking for fiscal 1986.
Congressional and administration sources said that no decision had been made but that Egypt was unlikely to obtain more than $200 million, if that, in addition to the roughly $1 billion in economic aid already budgeted for this year.
The request is certain to sharpen the dilemma the Reagan administration faces in responding to the escalating economic demands of its two chief Middle East peace partners.
Together, they want more than $3 billion beyond what they are scheduled to receive. The two countries already account for almost half of all U.S. foreign aid.
Israeli Finance Minister Yitzhak Modai, who completed three days of talks with senior U.S. officials yesterday, indicated at a news conference that he expected the administration to announce soon an economic aid package for the Jewish state that will come near the request for an immediate $800 million in emergency assistance.
Administration spokesmen have officially welcomed signs of new movement on the Arab side in the stalled Mideast peace process and an improvement in Egyptian-Israeli relations.
But they said many questions remain about both Mubarak's recent proposal and the recently concluded accord between King Hussein of Jordan and Palestine Liberation Organization chief Yasser Arafat before the United States decides whether, and how, to reengage in the peace process.
"We're still at the beginning of something that could lead to negotiations," said one State Department official cautiously. "It's early yet but at least there is movement . . . or the appearance of movement."
Among the questions U.S. officials ask is whether the Egyptian and Jordanian leaders are acting in tandem, or on separate tracks, in their peace initiatives and whether Hussein is ready to accept Mubarak's proposal for eventual direct negotiations between Israel and a Jordanian-Palestinian delegation.
The agreement signed between Hussein and Arafat Feb. 11 calls for a U.N.-sponsored international conference, rather than direct Arab-Israeli talks. The Palestinian leader has yet to comment on the Mubarak proposal but the PLO has officially condemned it.
"There is a lot more to be done between Hussein and the Palestinian leaders," the State Department official remarked.
Israeli supporters in Congress have voiced far greater skepticism, arguing that the Mubarak proposal was just "smoke and mirrors" in advance of his state visit here in quest of more military and economic aid this year and next.
The new Egyptian economic aid request for $870 million atop the $815 million already pledged is spurred partly by mounting foreign-exchange problems.
Cairo is $285 million in arrears on repayment of its $4.5 billion military debt to the United States. Last week it paid $60 million, thereby postponing from June to August a threatened aid cutoff stemming from a law that halts assistance to any country falling one year in arrears.
Egypt now anticipates a drop in oil exports as well as prices that will cost it $300 million this year. It is also estimating a drop of $400 million in remittances from Egyptians working abroad. These are its two main sources of foreign exchange earnings.
Egypt is asking for some of the $870 million -- as much as half, according to some accounts -- in cash. Such money could be used at least indirectly to pay off the arrears, according to administration sources.
Another rationale for the Egyptian request is that Israel is seeking $1.5 billion in emergency financial aid over the next two years.
The Egyptians have long argued for aid consideration on a par with Israel because of the political risks it took, and the Arab isolation it incurred, upon signing a peace treaty with Israel in 1979. Instead, the gap with Israel has steadily widened, provoking increasing resentment in Cairo.
The administration rejects the idea of a "parity formula" and has said it bases aid to Egypt on its needs, ability to absorb the funds and what Washington can afford to provide at a time of austerity at home. At the end of fiscal 1984, the so-called "pipeline" of unspent U.S. project aid to Egypt stood at $2.4 billion.
Israel's emergency request for $1.5 billion is in addition to projected fiscal 1986 military assistance of $1.8 billion and economic aid that is expected to be at least $1.2 billion.
The administration has not agreed to Israel's economic aid requests, saying it wants to see further fiscal reforms and austerity measures.
Finance Minister Modai said yesterday he and U.S. officials had agreed not to discuss figures and timetables in public, but when asked whether he expects to obtain most of his country's requests, he replied, "Yes."
Testifying before Congress this week, Secretary of State George P. Shultz and his undersecretary for economic affairs, W. Allen Wallis, argued that Israel must do more to set its financial house in order. But Israeli supporters on Capitol Hill made clear that if the administration delays much longer in submitting an economic aid figure for Israel, Congress is likely to take the initiative in deciding what the amount should be.