Egyptian activists demolish a concrete wall built around the Israeli embassy in Cairo earlier this month, to protect it against demonstrators. The Arabic writing on the wall says, “Egypt above all.” (Khalil Hamra/AP)

In his U.N. speech this week, President Obama vowed to support the democratic transitions in the Arab world with greater trade and investment, “so that freedom is followed by opportunity.” But his effort to back up that promise has run into hurdles in Washington and the Middle East.

Congress still hasn’t passed two programs Obama announced in May to help the emerging Arab democracies: economic development funds and a $1 billion debt relief package for Egypt. While they got partial approval from a key Senate committee this week, the plans have gotten a cool reception in the House.

The lawmakers’ reluctance contrasts sharply with the eagerness with which Congress extended economic aid to Eastern Europe after the fall of the Berlin Wall.

With all the strains on the U.S. budget, few expected a Marshall Plan for the countries emerging from the political tumult known as the Arab Spring. But critics say the U.S. response to the revolutions has been too tepid.

“It’s very important how these transitions turn out,” said Stephen J. Hadley, national security adviser to President George W. Bush, noting that Iran’s revolution also started out proclaiming democracy before producing an authoritarian state. “By the time the situation has clarified, we’ve lost a lot of opportunity for influence. We’d better start using whatever influence we have now.”

Egypt’s outcome crucial

The outcome of Egypt’s transition is particularly critical to the U.S. government. Its peace treaty with Israel has underpinned regional stability for decades. And as the most populous Arab country, it is a trend-setter; if democracy fails there, it could discourage progress in other parts of the Middle East and North Africa.

The country’s economy has been battered by a drop in tourism and foreign investment since the February revolution that ousted President Hosni Mubarak.

Obama has proposed setting up the kind of economic “enterprise” funds that bolstered Eastern Europe’s small businesses after the collapse of communism. When President George H.W. Bush called for such funds in 1989, lawmakers not only approved his request, they tripled it.

But Congress rebuffed the Obama administration’s effort last spring to get such funds for Egypt and Tunisia into the 2011 budget. Lawmakers are worried not only about spending but about the possibility that Islam­ists could dominate in elections in those countries. Their concerns were heightened by the recent attack by demonstrators on the Israeli Embassy in Cairo.

“Assistance to Egypt has benefited our national security interests in the past, but much has changed in that country in the last few months,” said Rep. Ileana Ros-Lehtinen (R-Fla.), head of the Foreign Affairs Committee. The committee hasn’t decided whether to authorize the Arab aid programs for 2012, but Ros-Lehtinen expressed skepticism.

“Many questions remain about the nature of the new Egyptian leadership, their agenda, their commitment to peace . . . and, most importantly, about their commitment to a strong relationship with the U.S.,” she said. “Yet, the Obama administration is rushing to offer all sorts of incentives.”

Increase in aid

For its part, the Senate Appropriations Committee approved $140 million in economic-development funds for Tunisia, Jordan and Egypt on Wednesday. But it limited the debt forgiveness to $500 million, with only $50 million of that available in 2012.

Administration officials say they are frustrated by the delays, but they are laying the groundwork for a broader effort.

This month, the Obama administration named a veteran diplomat, William Taylor, to coordinate aid to the Arab Spring countries. The federal Overseas Private Investment Corp. has approved $250 million in loan guarantees, and the administration has rerouted $100 million in aid from other Egypt projects to provide economic support.

On Thursday, Secretary of State Hillary Rodham Clinton signed an agreement that would provide training to Tunisia’s government and business sector. Tunisian Foreign Minister Muhammed Mouldi Kefi said he hoped it would ”put more flesh on the bone” after numerous visits from U.S. officials.

Meanwhile, Western and Middle Eastern nations have pledged $38 billion in financing for reforming Middle East countries, much of it in loans from international development banks. (The U.S. contribution would be indirect, through its payments to the World Bank and other institutions.) Whether such promises will materialize, however, is unknown.

Complicating matters has been the turnover in Egypt’s interim government. U.S. officials have begun preliminary talks with Egypt about Obama’s promise in May of a new regional trade initiative.

But “you don’t have anybody in charge of the ministries setting down what the policy markers are going to be,” said one administration official, speaking on the condition of anonymity to be candid.

Michele Dunne, a former State Department official now at the Atlantic Council, said the U.S. effort to help the emerging Arab democracies has been “piecemeal.”

“What’s needed is really something much more compelling, something that sketches out a vision of a prosperity and a new relationship for Egypt with the United States,” such as a free-trade agreement, she said.

In the short term, Hadley said, U.S. officials could mobilize university, foundation, private sector and other non-governmental sectors to establish new ties with the Arab Spring countries.

“What they do is probably more important than what the U.S. government does — and is likely to be more acceptable to the people in the region,” he said.

One of the most obvious areas in which the U.S. government has increased aid is for democracy promotion, tripling its grants to more than $65 million. But that has irritated Egypt’s leaders, who have complained that the funds are going to groups not registered with the government.

“We had thought that following the revolution, there would be more openness on their part to us working with different parts of civil society,” a State Department official said, speaking on the condition of anonymity because of diplomatic sensitivities.

U.S. officials have emphasized to the Egyptian government that the programs don’t favor individual parties. The disagreement “is less heated than it was,” the official said.