Egypt state press escalates dispute over U.S. NGOs CAIRO (Reuters) - Egyptian state-run newspapers escalated a dispute with the United States over an inquiry into civil society groups on Tuesday by splashing across their front pages accusations of an American plan to spread "anarchy" in the Arab country. Based on remarks by a government minister, the headlines marked another low in a crisis between Washington and Cairo triggered by the investigation into U.S.-based non-governmental organizations that has resulted in criminal charges against Americans who have been banned from leaving the country. "America is behind the anarchy," declared the front page of Al Gomhuria newspaper. "American funding aims to spread anarchy in Egypt," read the front page of Al Ahram newspaper. The papers are two of Egypt's most widely-distributed dailies. The headlines were based on comments made in October to the investigating judges by Minister of International Cooperation Faiza Abul Naga - but which only came to light on Monday when they were released to the state news agency MENA. In her remarks, Abul Naga linked what she said was a surge in U.S. funding for civil society groups last year to an attempt to steer the course of the post-Hosni Mubarak transition in "a direction that realized American and Israeli interests." "All the indications show that there was a clear desire to abort any chance for Egypt to emerge as a modern democratic state with a strong economy," she was quoted as saying, adding that such a prospect would be a threat to "American and Israeli interests." The timing of the statement's release is as telling as their contents, analysts said, coming just days after Egypt's military ruler appeared to signal an effort to contain tensions that now threaten $1.3 billion in annual U.S. military aid to Cairo. "It looks like an escalation, but I don't know if it is intended or it reflects a state of confusion in the conduct of domestic and foreign policies in Egypt," said Mustapha Kamel Al-Sayyid, a political analyst. Egypt insists the NGO case is a judicial matter and that all NGOs, regardless of origin, must heed Egyptian law. Accusations against the activists include working for organizations not properly registered in Egypt and receiving foreign funds illegally. The NGOs involved say they sought to register with the authorities but that their requests were not followed up. Many point out that they have operated openly in Egypt for years. The tiff is one of the worst in more than 30 years of close U.S.-Egyptian ties and has complicated Washington's efforts to establish relations with the military council that took power from Mubarak after his overthrow in a popular revolt a year ago. U.S. officials have called for the travel ban to be lifted, and the U.S. Congress has warned that the dispute could endanger aid to Egypt. While the White House announced plans on Monday to keep aid to Egypt at the level of recent years, a State Department spokeswoman said that "if we cannot resolve the current impasse it could have implications for this relationship and for our ability to disburse this money." Nineteen U.S. citizens are among 43 foreign and local activists barred from leaving Egypt because of the investigation. An undisclosed number of U.S. citizens have sought shelter in the U.S. embassy. In her remarks to the investigators, Abul Naga explained her doubts about the work of organizations involved, including the National Democratic Institute and the International Republican Institute, both loosely linked to the two main U.S. political parties. She said U.S. funding to civil society groups in Egypt had shot up following the uprising against Mubarak. Funds had been funneled outside the legal channels and diverted from development projects agreed with the government, she said. "Neither of the two states has the right to violate these agreements," said Abul Naga. Writing by Tom Perry; Editing by Mark Heinrich