The Obama administration is reviewing America's annual $1.3 billion aid package to Egypt as the White House walks a careful line between siding with an embattled ally and supporting a popular uprising demanding democratic reform. For several days, the administration remained circumspect while demonstrators gathered in Egypt's major cities, protesting poverty and government corruption and demanding the resignation of President Hosni Mubarak.

Critics have faulted President Obama for being slow to embrace the protesters' message. But the administration has been more concerned with maintaining stability in the volatile region, and avoiding any appearance of stage-managing the crisis.

At the State Department, news that Prime Minister Ahmed Nazif resigned while Mubarak stood firm was not met with enthusiasm. Mubarak on Saturday appointed Omar Suleiman, the head of Egypt intelligence services, to be his new vice president.

"The Egyptian government can't reshuffle the deck and then stand pat," State Department spokesman P.J. Crowley said in a message on Twitter. "President Mubarak's words pledging reform must be followed by action."

The unrest in Egypt puts the White House in a difficult spot. Obama cannot turn his back on Mubarak, an important if deeply flawed ally, but he also can't dismiss protesters demanding the same reforms the U.S. has been pressing Egypt to embrace.

"The United States has a close partnership with Egypt and we've cooperated on many issues, including working together to advance a more peaceful region," Obama said at the White House. "But we've also been clear that there must be reform -- political, social, and economic reforms that meet the aspirations of the Egyptian people."

Obama on Saturday convened his national security council and top advisors for just over an hour to discuss the evolving situation in Egypt. The president held fast to a position opposing violence on all sides while calling for progress on universal rights and democratic reform.

By the administration's calculation, strong anti-American sentiment in the region means that leaning in either direction toward a particular outcome is likely to backfire -- and make the situation worse.

At the same time, the administration is sending a strong signal to Mubarak with a review of foreign aid. Egypt is among the top recipients of aid from the U.S., along with Israel.

Jonathan Alterman, Middle East program director at the Center for Strategic and International Studies, said there is not much else the White House can do.

"As tensions are high in Egypt, neither the protestors nor the government are relying on signals from the United States," Alterman said.

He added that it is in the best interests of the U.S. for Egypt to see a "peaceful change" that averts violence and radicalization. The implications, he said, are broad.

"An Egyptian government that is less cooperative with Israel -- as many in the Egyptian public demand -- would make Israel feel less secure and could make Israel more prone to unpredictable unilateral actions, creating greater instability throughout the region," Alterman said.