This Opinion was originally posted on Freedom House's “Freedom at Issue” blog on June 21, 2012.

The past week’s developments in Egypt have been dispiriting to anyone who thought Hosni Mubarak’s ouster last year represented a true revolution. It is now clear that, though unplanned, Mubarak’s downfall presented a golden opportunity for Egypt’s generals to stage a soft military coup, easing him out of power and preventing a handover to his son and heir-apparent Gamal, a businessman with no military experience whom the generals were unwilling to accept. Since then, the world’s focus has been on Egypt’s continuous political turmoil: demonstrations by revolutionary forces in Tahrir Square, parliamentary and presidential elections, the struggle for power between Islamist movements and the Supreme Council of the Armed Forces (SCAF), and now reports of Mubarak’s incapacitation or death.  But the real story is the relentless campaign by Egypt’s “deep state”—its generals and their military-industrial complex, state security organizations, and elements of the former ruling party, with their well-established patronage networks and allied business interests—to stage a counterrevolution.

The key maneuvers took place in a rush just before the final presidential vote. On June 13, the Ministry of Justice effectively imposed martial law by issuing a decree giving military intelligence and armed forces officers the power to arrest civilians for a wide range of loosely defined offenses. The next day, Egypt’s High Constitutional Court, populated by Mubarak holdovers, invalidated  a law that excluded high-ranking members of the old regime from participating in politics, clearing the way for secularist former prime minister Ahmed Shafiq to stand in the presidential runoff against Muslim Brotherhood candidate Mohammed Morsi. The court also vacated the elections of the third of the parliament’s members who ran as independents, charging that they were actually members of parties, and called for the dissolution of parliament.

Over the weekend of Egypt’s presidential runoff (June 16–17), Egypt’s military swiftly followed up on these developments. On Saturday, the SCAF shuttered the parliament building and ringed it with it troops to keep the now disbanded legislators out of their own chamber. On Sunday, the SCAF issued a new “constitutional declaration,” a sweeping document that asserted broad authority for the military to control nearly every sphere of political power, including the right to issue laws, to name the body that will write the constitution, to cancel constitutional provisions it doesn’t like, and to maintain complete control over its own budget, free of civilian oversight.

And with that, the counterrevolution was largely complete.

In the wake of this successful power grab, and with the outcome of the presidential runoff undecided and in dispute, the generals have now attempted to soften their tone.  The SCAF has publicly stated that it will turn over power at the end of June, and has implored citizens to “trust the armed forces.” But these assurances ring hollow given that the SCAF has shown no sign of relinquishing its newly seized authorities. Moreover, the generals say they will transfer only “authorized” powers to the president, which at this moment include very little of substance.

In response, the U.S. State Department once again drew rhetorical lines in the sand. Secretary of State Hillary Clinton warned that “there can be no going back on the democratic transition called for by the Egyptian people,” and State Department spokeswoman Victoria Nuland announced that the new developments are “naturally going to have an impact on the nature of our engagement with the government and with the SCAF moving forward.” However, the SCAF will likely focus on the message coming from the Department of Defense. Defense Secretary Leon Panetta called Field Marshal Mohamed Hussein Tantawi late last week to insist on “the need to ensure a full and peaceful transition to democracy,” according to a Pentagon spokesman. But he also said that he “looks forward to working with Egypt’s newly elected government to advance our mutual interests” and agreed with Tantawi “on the importance of the U.S.-Egyptian strategic relationship.” The Egyptian military fully understands where the Pentagon’s priorities lie.

The Obama administration now finds its Egypt policy in a rocky place, with nothing but difficult choices ahead, and it is fair to ask how it got there. The United States had ample opportunity over the past year to nudge or push the generals to stay on the path of democratic transition, yet it was slow to recognize warning signs that the generals had another agenda in mind. The administration could have stood its ground by withholding military aid after the Egyptian government closed the local offices of U.S.-based prodemocracy groups and put 43 of their employees on trial. But it ultimately shrank from further confrontation. First it allowed the use of U.S. aid money to bail out the six Americans held in the case and flew them out of the country. The State Department then used its waiver authority to permit the release of Egypt’s military assistance, setting aside prodemocracy conditions written into law by Congress. Having thus backed down in a fight that Egypt’s generals sought and won, America’s leverage in the present crisis appears to be minimal. But it is not inconsequential.

Senator Patrick Leahy (D-Vt.) has suggested that the State Department refuse to disburse any of the $1.3 billion in military assistance unless the SCAF commits to the transition. The administration should take up this proposal, and specify tough and clear conditions under which the money will be released. In addition, the administration should make good on its promise to thoroughly review the U.S.-Egyptian relationship, a review which must be zero-based and free of preexisting redlines. The Obama administration could also strengthen the message to Egypt by ceasing to pretend that there is now a democratic transition under way and recommitting America’s full support to civilian government empowered by free and fair elections, taking care not to appear to endorse the SCAF’s coup in any way. This message would benefit from an effort to ensure that all agencies speak with one voice to their interlocutors in Cairo. It would be no empty gesture if, just once, the Pentagon—whose influence was decisive in the move to release military aid despite the civil society prosecutions—refrained from highlighting the importance of the security relationship in a conversation ostensibly focused on democracy.

The administration will need to act quickly. Already the political storm clouds are growing darker.  Protesters are mounting large demonstrations in Tahrir Square and elsewhere in the country to oppose the latest moves by the generals, and the Egyptian blogosphere is filled with predictions of violence. The prolonged period of unrest toward which Egypt seems headed can only worsen its already serious economic troubles and roil prospects for regional peace and stability.

In his landmark speech on the Arab Spring in May 2011, President Obama stated that “after decades of accepting the world as it is in the region, we have a chance to pursue the world as it should be.… It will be the policy of the United States to promote reform across the region, and to support transitions to democracy.” The United States now faces a crucial test. It must either prove that its policy really has changed, or decide that it is content with business as usual.