US Defence Secretary Leon Panetta. - AFP

CAIRO: US Defence Secretary Leon Panetta was holding meetings in Cairo on Tuesday in an effort to defuse tensions between Egypt and Israel that have mounted since the end of Hosni Mubarak's rule.

Also on the agenda was Egypt’s plan for elections and a transition to a civilian-led government, a US official said.

The Pentagon chief met with Egypt's military ruler Field Marshal Hussein Tantawi, who took power when Mubarak was ousted by a popular uprising in February, state TV said.

He was also scheduled to meet with Prime Minister Essam Sharaf.

Before flying out of Tel Aviv after a one-day visit to Israel, Panetta said he would seek to encourage Egypt and the Jewish state to ease friction over the Sinai and would ask Egypt's military rulers to release an alleged Israeli spy.

Ilan Grapel, a US-Israeli dual national, is accused of spying for Israel and has been in custody since June 12 but Israeli officials say it is all a mistake.

Speaking to reporters in Tel Aviv on Monday, Panetta said he hoped Grapel would be released but did not say whether the accused would be freed during his visit to Cairo as reported by some media.

“There's really nothing I can say about the specifics of that,” Panetta said.

“We have made our concerns known to the Egyptians about holding that individual,” he said.

“We would hope that whether it happens with me, or whether it happens at some point in the future, that they do take steps to release that individual.”

Grapel has been charged with being an agent of Israel's Mossad intelligence service and of sowing sectarian strife in Egypt during the uprising which ousted longtime US ally Mubarak in February after three decades in power.

Egypt said on Saturday it was considering releasing Grapel.

Relations between Egypt and Israel, which have been bound by a peace treaty since 1979, have entered a turbulent period since Mubarak's overthrow.

The end of the veteran strongman's rule has coincided with uprisings across the Arab world that could give greater voice to popular anger over Israel's treatment of the Palestinians.

Panetta expressed concern that Israel was “increasingly isolated” in the diplomatic arena and needed to work to shore up its relations in the region, particularly with Egypt and Turkey.

Speaking to reporters before his arrival in Tel Aviv on Monday, Panetta said Israel and Egypt needed to engage “directly” to defuse problems in the Sinai Peninsula.

Israel has said an attack on its south in August was mounted from the Egyptian territory and has expressed concern that a “security vacuum” has developed there since Mubarak's fall.

In Cairo, the Pentagon chief planned to reassure Cairo of Washington's commitment to the two governments' longstanding security ties.

He would also “encourage the transitional government to take the necessary and irreversible steps to clear the way for democracy,” said a senior defence official, who spoke on condition of anonymity.

Panetta met Egyptian Foreign Minister Muhammed Amr last week in Washington.

Tantawi said the state of emergency would be lifted “on condition that the security situation stabilises,” in remarks published in the state-owned Al-Ahram newspaper.

US Secretary of State Hillary Clinton said last week she hoped Egypt would lift the emergency well before June next year when the powers granted by the Mubarak-era parliament run out.

“We want to see this as soon as possible,” she said, adding that it was a key step to “create the context for free and democratic elections.”

After a day of meetings in Cairo, Panetta is due to fly to Brussels to meet Nato defence ministers who plan to discuss the allied air campaign in Libya and the war effort in Afghanistan.