An Islamist, anti-West and anti-Israel wave is set to wash over the world's Arab countries, Prime Minister Benjamin Netanyahu said Wednesday, as massive street protests against the ruling military regime continue to rage in Egypt.

"In February of this year, I stood on this stage as millions of people flocked to the streets in Cairo. Commentators and even some friends of mine here from the opposition explained to me then that we are entering a new era of liberalism and progress that will sweep away the old world order," Netanyahu said during a speech to the Knesset.

He continued, "When I said, despite all hopes, that it is more likely that an Islamist, anti-West, anti-Liberal, anti-Israel, and anti-democratic wave will come instead, they told me I am trying to scare the public, that we are on the wrong side of history, that I do not understand the direction in which things are heading."

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"Things are heading somewhere, but they are going backwards, not forwards," the prime minister said.

Despite growing concerns over the stability of the region, Netanyahu said, "We will work to stabilize and strengthen peace with Egypt. This is a strategic interest for both countries."

In the first official assessment of the latest unrest in Egypt, Homefront Defense Minister Matan Vilnai said the result in the all-important case of Egypt could be a “grave erosion” in the peace treaty, suggesting the deal could collapse altogether.

Israel’s main fear is the rise of the Muslim Brotherhood, which is poised to make major gains in elections set to begin next week. The group has so far responded coolly to Egypt’s peace with Israel and has close ties with the ruling Hamas militant group in the Gaza Strip.

"The picture is quite clear. We have been saying it for months. Apparently what we call the Muslim Brotherhood ... will ultimately be the majority in all the (Egyptian) institutions,” Vilnai told Army Radio.

He said he did not expect the Brotherhood to try to annul the peace deal immediately, since Egypt’s post-revolution government will be preoccupied with domestic issues.

"But once the regime stabilizes, as we expect it to do, we expect that there will be a grave erosion of this agreement. And we have to prepare for such a situation,” Vilnai said. “We are prepared for every scenario,” he added.

Netanyahu and Vilnai's comments came as massive Egyptian demonstrations against Field Marshal Mohamed Hussein Tantawi, head of the Supreme Military Council that has run Egypt since former President Hosni Mubarak was ousted in February, entered their fifth day despite Tantawi's promise to hand over power sooner to a civilian government - no later than July 1, 2012.

During a televised address to the country, Tantawi also raised the possibility of holding a referendum on immediately returning power to civilian rule.

On Tuesday, it became clear that most of the demonstrators in Cairo had not accepted Tantawi's promises, with protesters even speaking out against religious leaders.

Officials from the esteemed Al-Azhar University - the center of Sunni Islamic study - came to Cairo's Tahrir Square on Wednesday in an attempt to mediate between protesters and the military council.

Both sides agreed that the protests could continue, but that the violence would stop. Shortly afterwards, however, violent clashes were renewed on the streets of Cairo.

Demonstrators threw rocks at police and soldiers, who then responded by firing tear gas toward the protesters.

Medical officials working at a field hospital set up at Tahrir Square reported that three protesters were killed by live ammunition on Wednesday. According to the country's health ministry, at least 290 were injured on Wednesday alone, bringing the total to at least 35 dead and over 2,000 hurt since the renewed eruption of violence in Egypt last weekend.

Reports coming out of Egypt on Wednesday also said Mubarak asked doctors at the hospital where he is being kept to install a television in his room so he could watch the events. Mubarak reportedly told doctors that before he was ousted, he warned Tantawi that the situation in Egypt would deteriorate into anarchy.

Israeli officials have been careful not to take sides in Egypt's upcoming parliamentary election, wary of being seen as intervening in internal Egyptian affairs.

But Egypt-watching has become something of a national obsession.

A senior Israeli official involved in policy toward Egypt said that there is a sense in some circles that Egypt, given its dire economic situation, will not cancel the peace deal because it simply cannot afford to forego its benefits. "Even the Brotherhood is pragmatic," the official said, and the army will continue to play some sort of role because of its stabilizing influence.

Others argue the opposite point.

Eli Shaked, a former ambassador to Egypt, said that at some eventual stage when "the radical elements in Egypt are sitting strong in government, they will remove the 'abomination' as they see it of the Israeli flag in central Cairo ... they will be willing to pay the economic price of (rupturing) relations with Israel and the United States to promote their ideological, political, Islamist agenda — as occurs in other places like Iran."

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