The Senate’s rejection last month of an effort to end all military aid to Egypt showed lawmakers aren’t ready yet to give up on Washington’s long-standing strategic alliance with Cairo, despite the anti-Western rhetoric and repressive tactics used by the country’s new Islamist government.

Still, a bipartisan group of senators would like to restructure the annual $1.3 billion military aid package for Egypt, America’s second-largest recipient of aid, after Israel.

The idea is to shift that assistance away from fighter jets, tanks and other big, conventional weapons systems that Egypt has been buying from the United States and direct money toward programs that would address Egypt’s most immediate security challenges, such as the deterioration of internal police forces and a growing terrorist threat in the Sinai Peninsula.

“The Egyptians don’t need more F-16s and tanks,” said Arizona Republican John McCain, a member of both the Senate Armed Services and Foreign Relations committees. “They need a totally different set of assets than they have now.”

This new approach, also embraced by Pennsylvania Democrat Bob Casey, chairman of the Senate Foreign Relations Subcommittee on the Middle East, and Tennessee’s Bob Corker, the full committee’s ranking Republican, dovetails with an Obama administration effort to persuade the Egyptian military to embrace a greater counter-terrorist role, particularly against heavily armed Bedouin tribesmen and al-Qaida fighters who now roam the Sinai with impunity.

Since the collapse of government authority in the Sinai after the 2011 revolution, these groups routinely use the territory to traffic in drugs and weapons, including shoulder-held anti-aircraft missiles from the looted armories of deposed Libyan leader Muammar el-Qaddafi. Over the past two years, they have mounted deadly attacks against Egyptian and Israeli border forces, as well as members of a U.S.-led international force in the Sinai to monitor the 1979 Israel-Egypt peace treaty. (See “‘Mission Creep’ Poses Challenge.”)

On Jan. 31, the Senate roundly rejected a measure by Kentucky Republican Rand Paul that would have halted all arms sales to Egypt, including already purchased F-16 warplanes and M-1 tanks, to signal the Senate’s displeasure with its president, Mohammed Morsi. Last year, Congress conditioned U.S. military aid on the administration’s certification that Morsi’s government was protecting democratic freedoms. The aid continued after the administration invoked a national security waiver.

With Paul’s challenge now quashed, some lawmakers argue it’s time to restructure the aid package to build up the Egyptian military’s counterinsurgency capacity.

“Going forward, we should be giving the Egyptian counterterrorism assistance, particularly in the Sinai, which has become a terrorist safe haven,” said South Carolina Republican Lindsey Graham, a member of the Senate Armed Services Committee.

Pushback

But any move to restructure the aid is going to be a tough sell — both to the Egyptian military and to other U.S. lawmakers whose constituencies benefit from the defense industry jobs that the military aid supports.

In a telephone conversation last week with outgoing Defense Secretary Leon E. Panetta, his Egyptian counterpart, Defense Minister Abdel Fattah al-Sisi, emphasized his commitment to prevent the Sinai from being used as a base by terrorists to threaten Israel.

But Egypt experts say such remarks don’t convey the underlying tensions between Washington and Cairo over their defense ties. Both sides agree that the relationship, which dates back to the peace treaty between Israel and Egypt, is outdated and needs to be changed, said Khaled Elgindy, a Middle East expert at the Brookings Institution.

But while the Obama administration wants to pressure the Egypt military to assume a bigger counterterrorism role, senior Egyptian officers want the United States to increase its aid package to provide for both the big weapons systems and counterterrorism assistance.

“The military says that $1.3 billion in 2013 is not the same as it was in 1979, so it should be increased proportionately, accounting for inflation and all of the other adjustment that are made,” Elgindy said. “They say the $1.3 billion is nowhere near what they’re entitled to” under U.S. commitments written into the peace treaty.

‘Contractual Obligations’

On Capitol Hill, any new counterterrorism focus to the Egypt aid package is likely to face pushback from lawmakers who have their own parochial interests in the continued sale to Egypt of big weapons systems like the F-16 warplane and the M-1 main battle tank.

“There are contractual obligations,” said Kentucky Republican Harold Rogers, chairman of the House Appropriations Committee, referring to Egypt’s agreement to spend the U.S. military aid it receives on American military hardware. “Our assistance to the military in Egypt is something we need to be sure we don’t mess up.”

Senate Armed Services Chairman Carl Levin, D-Mich., said he wants more time to study the administration’s approach.

Under a financing agreement with Egypt, any canceled contracts for weapons sales would require the U.S. government to pay termination fees to American defense contractors. “The U.S. taxpayer would be on the hook for any aid that is frozen or suspended,” said David Schenker, an expert on Arab affairs at the Washington Institute for Near East Policy. “There’s a lot of jobs at stake as well. Any cancellation would have a pretty big domestic impact.”

Some lawmakers, such as Maine Republican Susan Collins, would like to see more of the fiscal 2014 Egypt aid package go to economic assistance, noting only $250 million of the total $1.55 billion in U.S. aid that Egypt receives annually goes for economic aid. Last year, Texas Republican Kay Granger, the top House appropriator for foreign aid, placed a hold on $450 million in debt relief that the administration planned to provide Egypt, largely in reaction to the Islamists’ rise to power and their anti-Western rhetoric.

Collins, a member of the Senate Appropriations Committee, said she found her colleagues’ push for an aid package more focused on counterterrorism “intriguing.”

She added: “It might be a better way to control what exactly is done with the aid. Egypt is still an important player in the region, and it’s still possible that it can come through this turmoil and be a constructive player. But I think the jury is still out on that.”