Ever since Egypt's revolution last year, many Israelis have wondered what it might mean for the peace treaty that the two countries signed in 1979 – the first such agreement between Israel and an Arab state.

Israel's embassy in Egypt was attacked last September and badly damaged. Islamist parties sharply critical of Israel have proved popular, including the Muslim Brotherhood, which won Egypt's parliamentary elections.

And this week, Egypt's state oil company announced it was terminating a contract to supply natural gas to Israel. That ended a joint venture that was considered one of the major benefits to flow out of the peace treaty.

All these developments have contributed to the Israeli concerns about what relations will be like in the coming years, and whether the peace with Egypt can be maintained.

In the Egyptian coastal city of Al-Arish in the northern Siani desert, local residents filmed last month's pipeline explosion, which sent flames leaping into the sky. The 750-mile long pipeline has been the target of terrorist bombings more than a dozen times in the last year alone.

A Major Source For Israel

Israel has relied on Egypt for 40 percent of its natural gas needs. But the frequent disruptions have taken their toll on the Israeli economy.

Still, many Israelis say they were surprised when the Egyptian partner in the joint venture that operated the pipeline announced it was terminating the contract.

"It's completely political. If there are some problems between the partners they should try to solve it by dialogue. But they have not done it. The Egyptians just announced in a kind of surprise to us that they are nullifying the agreement," says Zvi Mazel, Israel's former ambassador to Egypt.

Mazel first went to Cairo as a diplomat in 1980, just one year after Israel and Eygpt signed a peace deal. He returned in 1996, and served as Israel's ambassador until 2001 - a period of time in which he worked on the negotiations that led to the gas deal.

"I have here the agreement, signed between the government of Egypt and Israel that backed the guarantee to Israel that gas will continue to stream to flow to Israel at any cost," he says.

The deal was inked in 2005, and meant to last for at least 15 years. Mazel reads several of the articles in the contract, pointing out that many of them reference the peace deal struck between the two countries.

"The government of Egypt just repudiated its own guarantee agreement to Israel," he says.

A Business Dispute — With Political Overtones

Government spokespersons in both countries are trying to play down the issue as a dispute between two companies that does not threaten the peace treaty.

Israeli Prime Minister Benjamin Netanyahu released a statement saying that the terminated gas deal had nothing to do with political developments, and stressed that ties between Egypt and Israel remain strong.

Egyptian officials have issued similar statements.

Egypt's Minister of International Cooperation, Fayza Abul Naga has suggested that the deal could be revived if Israel agreed to pay a higher price for the gas.

It's a sensitive issue for Egypt where many believe that the former president, Hosni Mubarak, gave Israel favorable rates to curry favor with the Jewish state.

Israeli officials have not yet said whether they will pursue another deal with Egypt.

Mazel says Israel can always find gas elsewhere. But the peace deal, he says, is a bigger issue.

"It seems like a bad omen for the future," he says. "It's after all the problems that we had between us and Egypt, after the ouster of Mubarak, now we see the first cancellation of a treaty."

In Tel Aviv, the Roni Ful restaurant has become famous for serving traditional Egyptian fare, with modern Israeli accompaniments. The owner, Mor Haim Aharon, says many of his regular customers are Egyptian-born Jews who immigrated to Israel. He says they are not troubled by the recent dispute over the gas deal.

"This is not a political move," he says. "I think that our leaders know how to handle things with the Egyptian government. I don't think we are so worried about the gas deal."

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