Who rules Egypt? It's not up to Washington.
Following the discussion about events in Egypt, you would think that the U.S. gives Egypt $150 billion a year and not $1.5 billion. The prevailing presumption among Washington pundits is that $1.5 billion entitles America to a say in how Egypt is governed and that with-holding aid is a powerful tool to impact events there.
The opposite is true.
The reality is that whatever "influence" U.S. aid does purchase, it's not all that significant in the short term. Events, as they usually do, have out-stripped Washington's ability to "manage" them from afar.
Egypt's military rulers are going to act in what they perceive to be their best interest. This was made abundantly clear by a report over the weekend by the Washington Post which detailed how all of Egypt's major donors failed to convince the military not to brutally crush Brotherhood demonstrators. If the combined weight of all of Egypt's benefactors could not prevail upon the military, then the pleadings of U.S. senators is hardly going to move the needle.
Besides, the Gulf powers have already indicated that they will support Egypt's military no matter what, making U.S. aid more symbolic than substantive.
So that means that Egypt is headed back into a military dictatorship. While this runs afoul of Washington's professed "values" it is certainly preferable to a civil war or insurgency. A stable Egypt ruled by a military dictatorship is likely to breed anti-American terrorism, but an Egypt that crumbles into an all-out civil war definitely will (see Syria).
Over the long term, though, the U.S. must reassess its relationship with the military dictatorship reclaiming power in Egypt. While the legal case for withholding aid appears air tight, the moral and national security cases are more complex. Back-stopping a military dictatorship that violently crushes Islamist opponents is precisely the set of circumstances that directs violent terrorism against the United States. The only "vital" interest the U.S. has in Egypt is passage through Suez and there's no reason to believe that such an interest is in imminent danger if America withholds aid (though priority access may be withdrawn). On the other hand, the Brotherhood's short-lived rule did not win it many fans among Egyptians and their response to being evicted from power (i.e. burning down churches) provides an ominous window into their mindset. Throwing U.S. support behind them, even in the name of democratic legitimacy, is equally distasteful.
Ultimately, the U.S. should have cut off aid to Egypt after the Soviet Union collapsed, taking with it the over-riding strategic rationale for the aid in the first place. Obama is, in effect, caught in a foreign policy trap produced by Washington's refusal to abandon Cold War-era strategic prerogatives.
But whether the Obama administration withholds aid or doesn't (or finds some intellectually incoherent straddle), events in Egypt are going to run their course.