UPDATE 8-Egypt's Islamists seek to defuse crisis over decree

* Opponents say Mursi's decree must be cancelled

* Protesters say demonstrations will go on

* Islamists call off rival protest on Tuesday

(Adds presidential statement after talks with judges)

CAIRO, Nov 26 (Reuters) - Egypt's ruling Islamists tried to

defuse a political crisis on Monday, with President Mohamed

Mursi backing a compromise over his seizure of extended powers

and his Muslim Brotherhood calling off a planned demonstration.

Mursi provoked outrage last week that led to violent

protests when he issued a decree that put beyond judicial review

any decision he takes until a new parliament is elected, drawing

charges he had given himself the powers of a modern-day pharaoh.

Opponents plan to go ahead with a big demonstration on

Tuesday to demand he scrap the decree, threatening more turmoil

for a nation that has been stumbling towards democracy for

almost two years since president Hosni Mubarak was ousted.

However, the Brotherhood, which was behind Mursi's election

win in June, said it had called off a rival protest also planned

for Tuesday in Cairo. Violence has flared when both sides turned

out in the past.

Mursi's opponents have accused him of behaving like a

dictator and the West has voiced its concern, worried by more

turbulence in a country that has a peace treaty with Israel and

lies at the heart of the Arab Spring.

Mursi held crisis talks with members of the Supreme Judicial

Council, the nation's highest judicial body, to resolve the

crisis over the decree that was seen as targetting in part a

legal establishment still largely unreformed from Mubarak's era.

The council had proposed he limit the scope of decisions

that would be immune from judicial review to "sovereign

matters", language the presidential spokesman said Mursi backed.

"The president said he had the utmost respect for the

judicial authority and its members," spokesman Yasser Ali told

reporters in announcing the agreement.

After reading out the statement outlining what was agreed

with judges, Ali told Reuers: "The statement I read is an

indication that the issue is resolved."

PROTEST GOES ON

Protesters camped out in Cairo's Tahrir Square since Friday

to demand that the decree be scrapped said the president had not

done enough to defuse the row. "We reject the constitutional

declaration (decree) and it must be completely cancelled," said

Sherif Qotb, 37, protesting amongst tents erected in the square.

Mursi's administration has defended his decree as an effort

to speed up reforms and complete a democratic transformation.

Leftists, liberals, socialists and others say it has exposed the

autocratic impulses of a man once jailed by Mubarak.

Mona Amer, spokesman for the opposition movement Popular

Current, said Tuesday's protest would go on. "We asked for the

cancellation of the decree and that did not happen," she said.

Protesters are worried that the Muslim Brotherhood aims to

dominate the post-Mubarak era after winning the first democratic

parliamentary and presidential elections this year.

The crisis has exposed a rift between Islamists and their

opponents. One person has been killed and about 370 injured in

violence since Mursi issued Thursday's decree, emboldened by

international praise for brokering an end to eight days of

violence between Israel and Hamas in Gaza.

Before the president's announcement, leftist politician

Hamdeen Sabahy said protests would continue until the decree was

scrapped and said Tahrir would be a model of an "Egypt that will

not accept a new dictator because it brought down the old one".

As well as shielding his decisions from judicial review,

Mursi's decree protected an Islamist-dominated assembly drawing

up a new constitution from legal challenge. Liberals and others

say their voices are being ignored in that assembly, and many

have walked out.

Only once a constitution is written can a new parliamentary

election be held. Until then, legislative and executive power

remains in Mursi's hands.

Though both Islamists and their opponents broadly agree that

the judiciary needs reform, his rivals oppose Mursi's methods.

'NO CONFLICT'

The Supreme Constitutional Court was responsible for

declaring the Islamist-dominated parliament void, leading to its

dissolution this year. One presidential source said Mursi was

looking for ways to reach a deal to restructure that court.

"The president and the Supreme Judicial Council confirmed

their desire for no conflict or difference between the judicial

and presidential authorities," spokesman Ali said.

The council had sought to defuse anger in the judiciary by

urging some judges and others who had gone on strike to return

to work and by proposing the idea that only decisions on

"sovereign matters" be immune from legal challenge.

Legal experts said "sovereign matters" could be confined to

issues such as declaring war or calling elections that are

already beyond legal review. But they said Egypt's legal system

had sometimes used the term more broadly, suggesting that the

wording leaves wide room for interpretation.

A group of lawyers and activists has also already challenged

Mursi's decree in an administrative court, which said it would

hold its first hearing on Dec. 4. Other decisions by Mursi have

faced similar legal challenges brought to court by opponents.

Mursi's office repeated assurances that the steps would be

temporary, and said he wanted dialogue with political groups to

find "common ground" over what should go into the constitution.

The president's calls for dialogue have been rejected by

members of the National Salvation Front, a new opposition

coalition of liberals, leftists and other politicians and

parties, who until Mursi's decree had been a fractious bunch

struggling to unite.

The Front includes Sabahy, Nobel Peace Prize laureate

Mohamed ElBaradei and former Arab League chief Amr Moussa.

The military has stayed out of the crisis after leading

Egypt through a messy 16-month transition to a presidential

election in June. Analysts say Mursi neutralised the army when

he sacked top generals in August, appointing a new generation

who now owe their advancement to the Islamist president.

Though the military still wields influence through business

interests and a security role, it is out of frontline politics.

(Writing by Edmund Blair, Additional reporting by Yasmine

Saleh; editing by David Stamp)

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