"While we do not believe that force is the way to resolve political differences, after the military's intervention several weeks ago, there remained a chance for reconciliation and an opportunity to pursue a democratic path," Obama said. PHOTO: REUTERS.
Obama urged Egypt's army-installed authorities to lift a state of emergency and allow peaceful dissent, saying he "strongly" condemned the crackdown on demonstrators.
"While we want to sustain our relationship with Egypt, our traditional cooperation cannot continue as usual when civilians are being killed in the streets and rights are being rolled back," Obama told reporters at his vacation home on Martha's Vineyard.
Obama said the United States informed Egypt it was calling off the Bright Star exercises, which has been scheduled every two years since 1981.
In 2009, more than 1,300 US troops took part in Bright Star, in which Germany, Kuwait and Pakistan also participated.
But the exercises were also canceled in 2011 as Egypt was in the throes of the revolt that overthrew longtime strongman Hosni Mubarak, a close US ally.
Egypt has been in turmoil ever since, with the army on July 3 ousting the country's first democratically elected president, Mohamed Morsi.
More than 500 people have died since Wednesday when Egyptian security forces, defying appeals for restraint by the United States and other powers, crushed pro-Morsi demonstrations.
The United States has carefully avoided calling Morsi's ouster a coup, a designation that would require the United States to cut assistance.
Obama said that Morsi was "not inclusive" and that "perhaps even a majority" of Egyptians opposed the Muslim Brotherhood leader.
"While we do not believe that force is the way to resolve political differences, after the military's intervention several weeks ago, there remained a chance for reconciliation and an opportunity to pursue a democratic path," Obama said.
"Instead, we've seen a more dangerous path taken through arbitrary arrests, a broad crackdown on Morsi's associations and supporters, and now tragically violence that has taken the lives of hundreds of people," he said.
Obama ignored a shouted question from a reporter on US assistance to Egypt, one of the biggest recipients of US largesse since it signed a peace treaty with close ally Israel in 1979.
Obama has faced growing pressure to cut aid, with both The New York Times and The Washington Post running editorials sharply critical of his stance.
The Washington Post wrote that the Obama administration was "complicit" in the crackdown as it had shown to Egypt's rulers "that its warnings were not credible."
The administration had refused to label Morsi's ouster a coup, a designation that would have legally required a cut in aid.
Secretary of State John Kerry earlier praised the army and said it was "restoring democracy" by ousting the elected president, although he later backtracked on his remarks.
Senator Rand Paul, a member of the rival Republican Party who is critical of foreign aid, urged an immediate termination of assistance. He charged that Egyptian forces were using US military vehicles to quell dissent.
"While President Obama 'condemns the violence in Egypt,' his administration continues to send billions of taxpayer dollars to help pay for it," Paul said in a statement.
Democratic Senator Patrick Leahy, a frequent critic of military abuses overseas, also said that aid to Egypt "should cease until they restore democracy."
But a bid by Paul to cut military aid to Egypt was easily defeated in the Senate on July 31, with much of his own party agreeing with Obama on Egypt.
Israeli officials have also called for the United States to continue aid to Egypt, seeing it as vital to preserving the peace treaty and ensuring the military's cooperation against Islamist hardliners.
Obama insisted that the United States had no favorite candidate in Egypt, where conspiracy theories are rife about US support for either side.
"America cannot determine the future of Egypt. That's a task for the Egyptian people," Obama said.
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Dictomocracy Hail in Egypt by America what a world ?????????