Authors: By MAGGIE MICHAEL and AMY TEIBEL
CAIRO (AP) -- Egypt said Saturday it would recall its ambassador from Israel to protest the deaths of at least three Egyptian troops killed in a shootout between Israeli soldiers and Palestinian militants who had launched a deadly attack on Israel from Egyptian soil.
The decision sharply escalated tensions between the neighboring countries, whose 1979 peace treaty is being tested by the fall of Egypt's longtime autocratic leader, Hosni Mubarak.
Egypt's interim government accused Israel of violating that treaty and demanded an apology, saying the envoy would be withdrawn until Israel concludes its investigation into the Egyptian security forces' deaths. Israeli Foreign Ministry spokesman Yigal Palmor said the Israeli government was holding consultations on the Egyptian move.
The Cabinet, which was appointed by the ruling military council that took over power after Mubarak's ouster, revised an earlier statement saying the envoy, Yasser Reda, would be summoned for consultation - something that would have signaled a lower-level spat. Israel was likely to see that as a worrisome sign that Egypt's new leaders would be more responsive to public opinion about the Jewish state, which remains overwhelmingly unpopular because of its conflict with the Palestinians.
Israeli officials insisted the peace treaty was "stable" despite the rocky developments.
"No one had any intention to harm Egyptian security personnel," Amos Gilad, a senior Israeli Defense Ministry official who works closely with Egypt, told Israel Radio. "The question is what happened in the field and that is what is being investigated."
The cross-border attack has raised concerns about the increasingly lawless Sinai Peninsula, whose porous borders with both Israel and the Hamas-ruled Gaza Strip make it an attractive staging ground for Palestinian militant attacks on Israel. Israel says Gaza militants armed with guns, explosives, mortars and an anti-tank missile, killed eight Israelis in a roadside ambush on Thursday after infiltrating Israel through Sinai.
The ambush also has threatened to stoke the Mideast conflict as retaliatory violence between Israel and Gaza militants spiked. Israeli airstrikes killed at least 12 Palestinians, most of them militants, Friday in Gaza, and nine Israelis were wounded by Palestinian rockets fired into southern Israel.
On Saturday, one of those rockets struck three Palestinians who were illegally residing in Israel, injuring two of them seriously, police said.
The Egyptian troops were killed as Israeli soldiers went after suspected Palestinian militants involved in Thursday's deadly attack.
Israel has offered conflicting accounts about how the Egyptians were killed and the Israeli military has promised an investigation. But the Egyptian Cabinet, in a strongly worded statement, held Israel "politically and legally responsible for this incident," saying lax security on its side allowed the ambush to take place.
"The Egyptian ambassador to Israel will be withdrawn until we are notified about the results of an investigation by the Israeli authorities," the Cabinet statement said, demanding an immediate probe.
It said Egypt would take all measures and send reinforcements to protect its borders and "to respond to any Israeli military activity at the Egyptian borders."
It was the first time in nearly 11 years that Egypt decided to withdraw its ambassador from Israel. The last time was in November 2000 when the Egyptians protested what they called excessive use of violence during the second Palestinian uprising.
The decision to withdraw Reda was announced as thousands of protesters gathered outside the Israeli Embassy in Cairo for a second day, demanding the expulsion of the Israeli envoy. A Palestinian flag was unfurled at the site, and some of the demonstrators threw firecrackers at the building.
Some protesters removed concrete blocks from the entrance of a side street leading to the embassy while others banged on a metal fence with bars, but no violence was reported.
A dozen armored vehicles were stationed in the area and soldiers formed a cordon in front of the main gates to prevent any protesters from reaching the embassy building.
Mohammed Adel, a leader of the protests that toppled Mubarak, welcomed the Cabinet decision, saying, "It proves to all that the Egyptian revolution is capable of imposing its rules on the Israeli enemy."
The clamor against Israel also spilled into the political arena.
"Israel and any other (country) must understand that the day our sons get killed without a strong and an appropriate response, is gone and will not come back," declared Amr Moussa, a former Arab League chief and now an Egyptian presidential hopeful. He tweeted his statement along with, "the blood of our martyrs which was spilled while carrying out their duties, will not be shed in vain."
An Israeli military officer, speaking on condition of anonymity in line with military regulations, initially said a suicide bomber, not Israeli soldiers, killed the Egyptian security forces. He said the attacker had fled back across the border into Egypt and detonated his explosives among the Egyptian troops.
Israeli media also reported that some of the sniper fire directed at the Israeli motorists Thursday came from near Egyptian army posts and speculated that the Egyptian troops were killed in the cross fire.
It was not possible to reconcile the different versions.
While relations between the two countries have been chilly since Egypt became the first Arab nation to make peace with Israel in 1979, Israel valued Mubarak as a source of stability with shared interests in containing Iran and its radical Islamic proxies in the region - including the Hamas militant group that rules Gaza.
Egypt's new leaders have asserted their commitment to the landmark peace treaty with the Jewish state, but Israel fears that the country's political upheaval will open dangerous new opportunities for Gaza militants to open a new front against it along the Sinai frontier. While keeping up sporadic rocket attacks against Israel, Gaza militants have refrained from large-scale attacks since Israel conducted a punishing three-week war against them 2 1/2 years ago.
Egypt has moved thousands of troops into the Sinai Peninsula as part of a major operation against al-Qaida inspired militants who have been increasingly active since Mubarak's ouster.
Hamas praised Thursday's ambush - which was the deadliest for Israel since 2008 - but denied any involvement. Israel accused a Hamas-allied group, the Popular Resistance Committees, of carrying out the ambush.
Teibel reported from Jerusalem.