The sewer overflowed in the alley outside the Ahmed Bakery's entrance yesterday morning, and children coming to pick up their family's two-penny loaves of bread were wearing rubber boots or, more often, making their way barefoot through the black mud.

The father of one of them shouted angrily at a stranger with a camera as he edged around the muck. "Take a picture of this! Tell anybody about this! Television. Radio. Newspaper. See if anybody will listen!"

At Kubbah Palace a few miles away, meanwhile, President Hosni Mubarak was swearing in a new Cabinet.

His surprise choice for prime minister, economics professor Ali Lutfi, is supposed to do what no government of Egypt has been able to do: reduce Egypt's debts and deficits without "increasing the burdens on people with limited incomes," Mubarak's information minister announced.

Which brings us back to the sewage-filled streets of the Sayyida Zenab neighborhood in central Cairo and to the bakery.

Bread is subsidized in Egypt. So are a number of other basic foods, and electricity and gasoline. Since the 1950s, such subsidies have been the basic mechanism used to keep Egypt's poor majority fed and clothed and relatively quiet.

But while Egypt cannot do without the subsidies, it cannot afford them either. In effect, a former government economist said, "Egypt is addicted."

In 1984 the government hoped it could pare the cost of explicit subsidies from about $2.3 billion to about $1.95 billion. Instead the cost jumped to $2.8 billion. Bread is a particularly large item, since Egypt imports more than three-fourths of its wheat.

But to address the issue head-on by openly raising prices was, until recently, more than any government was willing or able to do. When Anwar Sadat tried it in 1977, he had bloody riots on his hands and had to reverse himself.

Last year, Mubarak's attempt to push up prices openly helped provoke riots again, this time in Kfar Dawar near Alexandria. Again the government reversed its declared increases. But Mubarak persisted, although with more subtlety.

According to Salah Ahmed, 30, whose family owns this bakery, the two-penny loaf he produces now is the same as the one-penny loaf he produced last year.

But according to his customers, when the two-penny loaf was introduced last year, it was supposed to be bigger and whiter than the one-penny version.

Over the months the two-penny loaf shrank and got darker, and the one-penny loaf disappeared. The price effectively had doubled for the people here.

Much the same thing happened with gasoline, which is produced domestically and sold at a fraction of the world market price.

Until last spring, most cars ran on regular gas, which cost about 66 U.S. cents a gallon. Then a new super gasoline was introduced at a price 33 percent higher. Soon the quality of the cheaper gasoline seemed to many drivers to deteriorate, and they found that their cars had to use the more expensive variety.

Then at the end of last month, when all the country was on vacation, the government raised the price of both grades. Now the new, improved gasoline, which many people think is much the same as the old, unimproved gasoline of a year ago, costs $1.10 a gallon.

Many economists defend such measures as the only effective way to rationalize the nation's finances.

They note that efforts to fix the prices farmers can charge have held down production while the subsidies have increased consumption. According to a U.S. Embassy study, "the food gap has grown, and Egypt, once a net exporter, imports about 50 percent of its food."

"Prices were so far away from the 'real' price that something had to be done," said Adel Beshai, chairman of the economics and political science department at the American University in Cairo. "But anything that is done must be done slowly. If anything, it may have been even faster than expected."

Beshai described himself as "one of the more optimistic" economists, noting that the Mubarak government has made major strides in improving the country's economic structure as well as attempting to improve its finances.

On the streets, however, people are feeling the squeeze. Even before the recent price increases, the urban inflation rate was about 20 percent.

In a densely crowded working-class slum such as this, life is only just livable no matter how cheap the government tries to make it. Basic services such as sewerage are marginal despite continuing efforts of the government and U.S. assistance programs.

The alleys are unpaved. The apartment houses are tightly packed. Marriages among young people are put off for years while they wait for a two-room apartment that may cost $7,000. Salaries are low, and not all price increases can be disguised. Every new expense is sharply felt.

That the streets remain quiet despite the increases appears partly the result of the Mubarak government's subtle tactics and partly a result of its direct confrontation of dissent.

When an opposition political party tried to hold a rally in Sayyida Zenab to protest price increases in June, the residents of the alley near the bakery woke up on the appointed morning to find the streets filled with police.

The rally never happened. The prices and the resentments, however, keep rising.

"Of course people are angry," said Mohammed Awad, 27, an agricultural engineer who works in a government food store. Like most university graduates, he was given a job where he is underemployed rather than unemployed. He makes about $62 a month.

"Prices are going up, and it's just too expensive for us to live," he said.

Salah Abdul, 50, a clerk in the same store, said, "I've worked in the same place for 25 years, and I make 79 pounds [about $92] a month. I have 10 children, and I've never gotten my rights from the government."

Behind them on the shelves were cans of tomato sauce, a staple in Egyptian cooking that has gone from 26 cents to 43 cents. There was not much else.

Rice should be about 7 cents a pound, but there has not been any for three months. Beans should be about the same, but for many weeks there has been none. The subsidized soap is also unavailable.

When something does show up, word spreads fast, and "we have all of Sayyida Zenab in here," one customer said.

"It's always the same," a woman office worker said. "When they want to increase the price they take it off the shelves, and you never see it. And then when they bring it back, the price is up."

In this context, some observers believe Lutfi's appointment as prime minister -- replacing the well-known political figure Kamal Hassan Ali -- may have been another bit of theatrics rather than a genuine change. Only six other relatively minor ministers were changed with him.

Some analysts have questioned whether a technocrat like Lutfi is needed as much as a politician. Few people have questioned, from a policy perspective, what needs to be done. The mandate from Mubarak remains exactly the same for Lutfi as for his predecessor: "economic growth within a framework of stability."