In this image released by the Egyptian President, an Egyptian military officer salutes President Mohammed Morsi, third from right, as he sits with Prime Minister Kamal el-Ganzouri, center, Field Marshal Hussein Tantawi, fourth right, Army Chief of Staff Gen. Sami Anan, second right, and the Grand Sheik of Al-Azhar, Ahmed el-Tayyib, right, at a graduation ceremony at a military base east of Cairo, Egypt, Monday, July 9, 2012. Egypt's highest court insisted Monday that its ruling that led to the dissolution of the Islamist-dominated parliament was final and binding, setting up a showdown with the country's newly elected president. The announcement on state TV came a day after President Mohammed Morsi recalled the legislators, defying the powerful military's decision to dismiss parliament after the Supreme Constitutional Court ruled that a third of its members had been elected illegally.(AP Photo/Sheriff Abd El Minoem, Egyptian Presidency)

Cairo - Egypt's parliamentary speaker said the chamber would reconvene on Tuesday after the new, Islamist president risked a showdown with the generals by quashing their decision to dissolve the assembly last month.

Quoted by the state news agency on Monday, Saad al-Katatni, who like President Mohamed Morsi hails from the long-suppressed Muslim Brotherhood, said the lower house would sit from noon (1000 GMT) on Tuesday, defying the army's order to dismiss parliament a month ago, based on a court ruling.

Morsi issued his decree to recall parliament on Sunday barely a week after he took office. That threatened fresh uncertainty for a nation whose economy is on the ropes and where many are anxious for calm after 17 turbulent months since the fall of Hosni Mubarak.

“Early confrontation,” wrote Al-Akhbar newspaper, summing up Morsi's decision which could end a brief honeymoon with the military council, led by Field Marshal Hussein Tantawi.

Yet Mursi and Tantawi showed no hint of discord on Monday when the president, as he did last week, attended a military parade. Seated next to each other, Morsi and Tantawi turned to each other in a brief jovial exchange, television images showed.

The military council which had run Egypt since Mubarak was toppled in February 2011 sought to trim the president's authority before handing over to Morsi on June 30. It had dissolved parliament and taken legislative power for itself.

Morsi's decision hands those powers back to a parliament packed with his Islamist allies. He also ordered new elections for parliament - once a constitution is passed by referendum.

The row is part of a broader power struggle which could take years to play out, pitting the long sidelined Islamists against generals whose fellow officers ran Egypt for six decades and a wider establishment still packed with Mubarak-era officials.

It could also set the Brotherhood, the biggest winner so far in Egypt's political transformation, against liberal rivals and against the judiciary, which has juggled cases challenging every step of the nation's trouble road to democracy.

The Supreme Constitutional Court, whose ruling led to parliament being dissolved, asserted that its decisions were final and binding, in a statement issued after the court met in emergency session in response to Morsi's decree.

The court also said it would review cases challenging the constitutionality of Morsi's decree on Tuesday.

The Egyptian Social Democratic Party, which has a handful of seats in parliament, condemned the president's recall of the assembly, saying it was a “violation of the judicial power” and resembled the high-handed approach long seen from the army.

About 1 000 people gathered in Cairo's prosperous Nasser City suburb to protest against Morsi's decision and calling for parliament not to convene. The Brotherhood called on its website for a show of support for Morsi on the streets on Tuesday.

But the Brotherhood played down any dispute.

“We affirm that there is no confrontation with the judiciary and the decision respects the verdict of the constitutional court,” said presidential aide Yasser Ali.

Katatni said parliament would discuss on Tuesday “how to implement the court ruling” that declared the assembly void and a legal committee would be asked to draw up proposals.

Some analysts said Morsi's decision to order early elections could offer a compromise by acknowledging the court's assertion that the election to the chamber breached some legal rules.

One European diplomatic source said recalling parliament gave Morsi leverage over the military, but could also placate Islamists who dominate the assembly so that Morsi would have a freer hand to pick a broader cabinet with non-Islamist members.

“The test will come when we see how the soldiers guarding the parliament building behave when MPs try to convene,” the source said of Katatni's call to convene a session on Tuesday.

In a further sign the generals may not challenge Morsi head on, the state news agency reported that guards at parliament had allowed some members into the building on Monday. It had been declared off limits when the army ordered the chamber dissolved.

The generals had also met late on Sunday to discuss Morsi's decree but did not release a statement afterwards.

The military council has less formal room for manoeuvre now that it has transferred presidential powers to Morsi, even if it has removed some powers from that office. He, however, is in a position that would have seemed unimaginably strong to the Brotherhood a year and half ago, when it was still banned as an organisation and its members were being hounded by Mubarak.

In one of his most high-profile meetings since taking office, Morsi met U.S. Deputy Secretary of State William Burns at the presidential palace on Sunday, signalling the new ties Washington is forging with resurgent Islamists in the region.

Burns pledged that the United States, which grants the Egyptian armed forces $1.3 billion a year in military aid, would support Egypt's economy, which has been haemorrhaging cash and is heading for a balance of payments and budget crisis.

Once a darling of emerging market fund managers, Egypt has watched foreign investors flee and its vital tourist trade has taken a big knock from the turmoil of the last year and a half.

Foreign reserves have plunged to about $15.5 billion, less than half their level before anti-Mubarak protests erupted, and the government has been forced to pay double-digit interest rates, seen as unsustainable, to fund its spending.

“Already domestic financing has reached a critical stage where you can't rely totally on the market any more,” said one Western diplomat. The government was running up payment arrears with energy suppliers and raising funds from the central bank, the diplomat noted - tactics sustainable only for a short time.

Adding to the murky outlook that is unsettling investors, legal wrangling looks set to continue. Following the judges' dissolution of parliament and scrapping of a constitutional drafting panel appointed by parliament, further challenges in the courts could yet derail a second drafting panel.

In addition to cases with the Supreme Constitutional Court, court officials said about 20 suits against Morsi's decree had been presented to other courts. One of those was submitted by lawyer and leftist member of parliament Abul Ezz el-Hariry, who said it would be reviewed by an administrative court on Tuesday. - Reuters