Israel will continue to maintain ties with Egypt, even in the event an Islamist candidate is elected president in the elections scheduled for late May, Prime Minister Benjamin Netanyahu said in a comprehensive interview with Army Radio on Tuesday.

"I am willing to work with anyone who is prepared to maintain peace," Netanyahu said. "There is no question about that." His comments come against the backdrop of the announcement on Sunday that the Egyptian Natural Gas Holding Company terminated its contract to supply Israel with natural gas. Israel has tried to play down the cancellation, calling it part of a business dispute rather than a diplomatic one, but it points to the increasingly fragile ties between the two countries following the ouster of Egyptian President Hosni Mubarak in February 2011.

Also speaking to Israel Radio on Tuesday, Netanyahu said "The Sinai is turning into a kind of Wild West which ... terror groups from Hamas, Islamic Jihad and al-Qaida, with the aid of Iran, are using to smuggle arms, to bring in arms, to mount attacks against Israel."

"We are acting against this reality and we are in ... continuous discussions with the Egyptian government, which is also troubled by this," Netanyahu said.

Israel's Counterterrorism Bureau renewed a warning on Sunday, urging Israelis not to travel to the Sinai because of intelligence warnings of planned militant attacks.

Israel and Egypt signed a peace treaty in 1979, and while relations have never been particularly warm, the quiet border has been critical for the security of the two neighbors. Egyptian energy exports to Israel and other business ties have helped keep the peace. But on Sunday, the Egyptians unilaterally stopped the transfer of gas to Israel, causing much consternation that the fragile peace accord between the two neighbors was unraveling.

"We don't see this gas cutoff as something that is born out of political developments," Netanyahu told Army Radio on Monday. "It's actually a business dispute between the Israeli company and the Egyptian company." He added that Israel has "the gas reserves to make Israel totally energy independent, not only from Egypt but from any other source" and said Israel could become one of the world's large exporters of natural gas.

Foreign Minister Avigdor Lieberman was quoted as saying on Sunday that the situation in Egypt was more worrying than what was happening in Iran, and called for a significant boost to troop numbers along the southern borders.

In an apparent riposte, Egypt's interim military ruler, Field Marshal Mohamed Hussein Tantawi, cautioned on Monday against any interference along the long desert frontier.

In his interview with Army Radio ahead of Israel's Independence Day, which begins at sundown on Wednesday, Netanyahu addressed other wide-ranging issues, including domestic topics such elections, the controversy over the possible evacuation of the Ulpana Hill section of Beit El and the international issue of Iran.

Netanyahu said he did not fear elections but neither was he eager to see them moved up before their scheduled date in late 2013. "If we are forced to hold elections, we will do so and I believe we will emerge victorious," Netanyahu said. "At the same time, the coalition is stable right now and I don't believe that we will have elections by August [as some have speculated]."

Netanyahu listed some of his government's achievements, claiming that the economy has been managed responsibly, leading to growth and the creation of nearly 240,000 jobs.

Netanyahu also addressed the controversy over the possible evacuation of the Ulpana Hill section of Beit El, saying it is a complex issue, in legal terms, but that the government was seeking a resolution. The state previously told the High Court that the outpost would be evacuated by next week, but the government intends to ask for a deferral.

Netanyahu said he created a panel of ministers and other professionals to examine the issue, adding, "We will ask the High Court of Justice to postpone the evacuation so we can address the matter ... We obviously have to work within the law, but we also have national needs. There are deep ties to this land, but we also recognize that we are part of the international community and we have to reach an agreement with our neighbors. We are taking all of these things into consideration."

Netanyahu defended Defense Minister Ehud Barak following criticism from some Likud ministers who accused him of evacuating outposts for political gain, saying, "Ehud Barak is a defense minister who faithfully executes government policy. There is no private policy, and we cooperate when it comes to security issues that are important to Israel, both in Judea and Samaria and elsewhere in the world. Of course I accept what he does, as we have succeeded in maintaining a high level of security."

In the interview, Netanyahu also addressed the possible release of convicted criminals in exchange for information about the whereabouts of missing Druze soldier Majdi Halabi. "I don't spare any effort when it comes to bringing home our hostages and missing – I wouldn't say at any price, but if we locate [Halabi] using these means then yes, I would do it. I can't say there is a solid foundation to the information we have received, but I am relying on professionals," Netanyahu said.

"At the end of the day, I have to make a decision," he went on. "I brought back Ilan Grapel [from Egypt] and that also required us to pay a price, and we are working to secure the freedom of Jonathan Pollard. Our efforts are tireless because this is our duty."

Netanyahu said the government was also working to free Ouda Tarabin, an Israeli Bedouin who has been held in Egypt for more than a decade, and that he made the decision to release more than 1,000 Palestinian prisoners in exchange for Gilad Schalit because he recognized that time was running out for such a deal.

Netanyahu also reiterated his belief that Iran should not be allowed to possess nuclear weapons. "I hope that Iran halts its nuclear program," he said. "Iran is under immense international pressure. We have played a role in that. This is all designed to end Iran's nuclear weapons program."

Netanyahu said there was broad consensus on two things: that Iran must not have nuclear weapons, and that Israel must be able to defend itself against all threats. "Those two things have been echoed by the U.S. president," Netanyahu said. "If the international community manages to stop Iran by means of new, crippling economic sanctions, all the better. The timetable for solving this problem should not be measured in days, but neither should it be measured in years; my view on this has not changed."