DAVID GREENE, HOST:

This is WEEKEND EDITION from NPR News. Good morning, I'm David Greene sitting in for Rachel Martin. There are new fears that the once stable relationship between Israel and Egypt is beginning to fracture. This past week, Egypt's state oil company announced that it was terminating a contract to supply natural gas to Israel. That ended a joint venture that was considered a major benefit of the 33-year-old peace treaty between the two countries. Many in Israel are now beginning to wonder if the peace with Egypt can be maintained, as Sheera Frenkel reports.

(SOUNDBITE OF GAS ESCAPING)

SHEERA FRENKEL, BYLINE: The low roar of the flames escaping from the gas pipeline can barely be heard across the northern Sinai Desert, but the flames leap far into the night sky. Locals filmed last month's explosion outside the coastal city of Al-Arish. The 750-mile-long pipeline has been the target of terrorist bombings more than a dozen times in the last year alone. Israel has relied on Egypt for 40 percent of its natural gas needs, and the frequent disruptions have taken their toll on the Israeli economy. Still, many here say they were surprised when the Egyptian partner in the joint venture that operated the pipeline announced it was terminating the contract.

ZVI MAZEL: It's completely political, because 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.

FRENKEL: That's Zvi Mazel, Israel's former ambassador to Egypt. He first went to Cairo as a diplomat in 1980, just one year after Israel and Egypt 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.

MAZEL: Listen, I have here the agreement, signed between the government of Egypt and Israel that backed the guarantee to Israel - gas will continue to stream, to flow to Israel at any cost.

FRENKEL: The deal was inked in 2005 and meant to last for a period of at least 15 years.

MAZEL: The government of Egypt repudiated its own guarantee agreement to Israel.

FRENKEL: Government spokespersons in both countries are trying to downplay 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 ousted President Hosni Mubarak gave Israel favorable rates to curry favor with the Jewish state. Mazel says Israel can always find gas elsewhere. But the peace deal, he says, is a bigger issue.

MAZEL: It seems it's a bad omen for the future. 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.

FRENKEL: In Tel Aviv, the Roni Ful restaurant has become famous for serving traditional Egyptian ful - mashed fava beans - 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 aren't fazed by the recent furor over the gas deal.

MOR HAIM AHARON: (Through Translator) This is not a political move. 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.

FRENKEL: Aharon says that as former Egyptians, they know that political tension comes and goes, but that the peace deal is important to the stability of both countries. For NPR News, I'm Sheera Frenkel.

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