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Arab Israelis and Egyptians hold the Egyptian flag as Israeli police stands guard (back R) during a protest near the Egyptian embassy in Tel Aviv in support of the mass demonstrations taking place in Egypt calling for an end of Egyptian President Hosni Mubarak's regime. - 


Bob Moon: Bloody protests are still rocking Egypt. Opponents of President Hosni Mubarak continued to clash with his supporters today.

Perhaps no nation is watching the crisis more closely than Israel, which shares a border with Egypt. The two countries have had a relatively stable relationship since they signed a treaty in 1979. But it's been a "cold" peace, providing security, but not much else. From an economic standpoint, analysts say it's never lived up to its promise.

As Marketplace's David Gura reports, that could change -- depending upon what happens next.

David Gura: One thing's for sure: There's plenty of room for improvement.

Ian Lustick teaches Middle Eastern politics at Penn.

Ian Lustick: There's not a long way to go down, because it's not a very large economic relationship.

There's a tiny amount of trade between the two countries -- with one exception.

Haim Malka: Israel is importing about 40 percent of its natural gas supplies from Egypt at the moment, which translates to about 15 to 20 percent of Israel's electricity generation.

Haim Malka is a fellow at the Center for Strategic and International Studies. And he says the 2005 gas deal didn't go over very well -- in either country.

Malka: In Egypt, opposition forces often cited the Israeli-Egyptian gas deal as the Egyptian government sellout to Israel.

Now Israel has discovered its own natural gas, so eventually it could live without the deal. Many Egyptians are sour on Israel: They won't buy Israeli goods because they oppose many Israeli policies.

The U.S. has said companies that use both Egyptian and Israeli parts in products can avoid U.S. tariffs. But to take advantage of that, others say Egypt's economy needs an overhaul first.

Joseph Pelzman is one of them. He's a trade economist at GW.

Joseph Pelzman: They have lots of educated people abroad that would love to come back. But they need market reforms, which they don't have.

Israel absorbed a million immigrants after the fall of the Soviet Union, and it's become a high-tech powerhouse. He says Egypt could do the same. And that could make it become a better economic partner with its neighbor.

In Washington, I'm David Gura for Marketplace.

Follow David Gura at @davidgura