By Shadia Nasralla and Angus MacSwan
CAIRO (Reuters) - Thousands of supporters of ousted Egyptian President Mohamed Mursi on Friday defied warnings from the army-installed government to end their protests, heightening international concern that a violent confrontation was imminent.
Crowds rallied at a protest camp around the Rabaa al-Adawiya mosque in northeast Cairo after Friday prayers, chanting "Down with the coup, the coup is terrorism".
Leaders of Mursi's Muslim Brotherhood mounted a stage to urge them to stand firm in their demand for him to be brought back to power. "Soldier, your place is not in politics," senior official Ahmed Aref said as the people pumped fists in the air.
The Rabaa camp is the likely flashpoint of the crisis brought on by the military overthrow of the Islamist Mursi and establishment of an interim government five weeks ago.
Security forces have warned the protesters to leave peacefully or face action. But the camp has been turned into a virtual fortress, protected by sandbag-and-brick barricades.
"Kill as you like. We will not move from here," a preacher told worshippers at prayers in the mosque. "This is a revolution. You who are present will make the decision on whether you will disperse."
Despite the tension, an undeclared truce seems to have taken hold over the Eid al-Fitr holiday, which celebrates the end of the Muslim fasting month of Ramadan and finishes on Sunday.
No police or troops could be seen in the immediate vicinity of Rabaa on Friday afternoon.
Some Egyptians felt the security forces would not attack before the end of Eid as this would be sacrilegious.
But a diplomat from a European country said his country was worried about the risk of violence this weekend.
"It's a dangerous situation. There is a concern that things could turn serious on Saturday and Sunday," he told Reuters.
Mursi took power as Egypt's first democratically elected president in June 2012. But fears he was trying to set up an Islamist autocracy and his failure to ease economic hardships led to mass street demonstrations which triggered the army move.
The crisis reached a dangerous new phase after the collapse this week of an international effort to bridge the gap between the two sides and avert bloodshed. Mursi and many other leaders of the Muslim Brotherhood remain in prison.
TANKS AND BULLETS
At Rabaa, groups of men armed with sticks guarded the camp entrance as thousands of people marched in from other mosques.
One man, a 43-year-old employment agent named Mohamed, said they would defend their position until Mursi was restored
"We are not afraid because we are right. We are all martyrs in the making. Those who rape the rights of the people are the losers. We are not terrorised by tanks and bullets," he said.
Despite the brave words, the weapons on display would prove little match for the security forces. The government says, however, that the Muslim Brotherhood is heavily armed.
Many women and children were also present. Many little girls had their hair made up for Eid with bright pink, yellow or blue hairbands and colourful new dresses.
The government has said the children were being used as human shields.
Almost 300 people have been killed in political violence since the overthrow, including dozens of Mursi supporters shot dead by security forces in two incidents.
Diplomats say any settlement would have to involve a dignified exit for Mursi, Brotherhood acceptance of the new situation, the release of political prisoners arrested since the takeover, and a future political role for the Brotherhood.
So far, the Brotherhood has refused to accept what it calls the illegal coup and has publicly demanded Mursi's return.
Senior Brotherhood figure Mohamed El-Beltagi reiterated those demands before the Rabaa crowd and said those responsible for the protesters' killings must be prosecuted.
In Paris, French Foreign Minister Laurent Fabius spoke on Thursday with various Egyptian players by telephone. He underlined the need for dialogue and compromise rather than fuelling tension or inciting violence, a French spokesman said.
The European diplomat said the Egyptian army was under enormous pressure from hardliners in its ranks and from part of the populace to take harsh action against the Brotherhood.
On the Brotherhood side, some too advocated a tough stand.
"They have people among them who are ready to go to the limit," the diplomat said.
European diplomats were stressing to the new leadership that they were damaging their own and Egypt's image. But no meetings in Egypt or elsewhere were planned at this stage since the breakdown of the international mediation, the diplomat said.
Government and military sources said the talks had not terminated but rather frozen, to assuage public anger over perceived foreign interference in Egyptian affairs and the authorities' willingness to negotiate with the Brotherhood.
Turkish President Abdullah Gul, meanwhile, added his voice to appeals for a return to democratic rule.
In an article in the Financial Times, Gul urged the Egyptian authorities to allow all parties to take part in the political process and to release Mursi, though he stopped short of calling for his return to office.
"The Egyptian people have almost been split into two camps, each of which is rallying dangerously against the other. This situation is worrying and unsustainable," he wrote.
(Additional reporting by Catherine Bremer in Paris and Michael Georgy in Cairo, Editing by Mark Heinrich)