Egyptian President Mohamed Morsi 's sudden decision on Sunday to kick out several top military commanders came as a bolt out of the blue for Israel, and officials here are scrambling to assess the possible repercussions.

At the top of Morsi's "must-go" list was Hussein Tantawi, who headed the Defense Ministry and armed forces. Tantawi also led the Supreme Council of the Armed Forces (SCAF) which governed Egypt in the transition period between former president Hosni Mubarak's downfall in February 2011, and Morsi's ascension to the role in June 2012.

Tantawi, however, will remain on as a presidential adviser. Morsi is a member of the Muslim Brotherhood which was banned from taking part in elections during Mubarak's reign.

"The issue was that it (became) too clear in the last few months that Egypt was being led by two heads," Dr. Mordechai Kedar, of Bar-Ilan University, told Xinhua on Monday. "One is the civil head in Morsi and the Muslim Brotherhood on the one side, and the other side is Tantawi and the army."

According to Kedar, "This wasn't good, because a state can't be run by two heads which are pulling the wagon in two different directions."

"It was necessity to decide who leads the country," he added.

The dismissal comes a week after several dozen Islamists killed 16 Egyptian soldiers in the northern Sinai Peninsula at a border post close to Israel and the Hamas-ruled Gaza Strip.

The heavily-armed militants, packing more than 500 kg of explosives, then hijacked two vehicles and tried to plow across the border into Israel and carry out a mass-casualty terror and hostage-taking attack on troops or nearby farming villages.

However, quick combined action by Israeli Defense Forces air and ground units foiled the unprecedented attempt, part of a strategic strike on two neighboring states at once.

Both attacks were illustrative of the level of lawlessness that has developed in Sinai since Mubarak was forced to step down.

MORE THAN AN ARMY

"The question is really what will be the next step with the army," Kedar said.

"Because the army - let's not forget - is an economic empire inside Egypt. It's economically independent; it has its own malls and companies and whatever an army isn't suppose to do as an army, they do," Kedar noted, adding that, "The army actually lends money to the state."

As much as 40 percent of the Egyptian economy is in the hands of the army, according to The Daily News Egypt. The army, through various companies, owns factories producing goods ranging from bread and shoes to cars and cement. In addition, the army controls much of the most sought after real estate in Egypt.

In addition to the income generated from its businesses, the United States also gives the army an annual 1.5 billion U.S. dollars to purchase American military equipment. This aid - closely tied to maintaining the peace agreement with Israel - has allowed the Egyptian armed forces to obtain a level of technical sophistication which, regionally, is surpassed by Israel alone.

"The question now will be if Morsi tries to subjugate the economic side of the army to the state, to take all the assets which the army has," Kedar said.

"This might be the 'to be or not to be' question for the army; this man or that man is something else, but when it comes to the assets, this could be the point where the army says 'enough is enough,'" he added.

RELATIONS WITH ISRAEL

When Mubarak was ousted last year, there was fear in Israel that the stable - but cold - relationship that has existed since the signing of the 1979 peace agreement would drastically deteriorate, especially since members of the Muslim Brotherhood have called for the agreement to be annulled.

Until now, those fears were calmed by the fact that many of the foreign policy powers that Mubarak enjoyed as president had been transferred to the army.

However, when Morsi dismissed Tantawi and the other military officers, he also canceled a constitutional decree issued by the SCAF in the weeks before he resumed office.

According to his official spokesperson Yasser Ali, Morsi would issue a new constitutional decree that "allows him to exercise full presidential powers," without specifying what these powers would include - hence making it difficult to predict the changes' ramifications.

What effect the dismissals will have on the situation in Sinai still remains to be seen. But the changes at the top have so far not affected the efforts on the ground. On Monday clashes between Egyptian forces and militants continued.

Prior to news of Tantawi's dismissal, on Sunday Prof. Gabriel Ben-Dor of the University of Haifa told Xinhua that fears that the lawlessness in Sinai would become a wedge-issue between Israel and the new Egyptian regime hadn't materialized.

"It is turning out to be the opposite, it's as much a problem for Egypt as it for Israel," Ben-Dor said. "The Egyptians are going to clamp down hard on terrorism in the Sinai and it's not going to drive a wedge between Israel and Egypt, but perhaps, quite the contrary," he added.

So far, Israel has accommodated Egyptian requests to increase forces deployed to chase down the militants, estimated at several thousand members of a number of groups, including al-Qaida. So far, Cairo has sent jets, helicopters and some seven battalions of armor-backed troops into the field in order to adequately cover the vast desert plains and craggy passes in the central part of the peninsula.

Goodwill gestures aside, however, the boosted Egyptian troop deployment and helicopter firefights with terrorists have raised some concern among Israeli observers. Not only are the airstrikes the first such attacks by Egyptian army since the 1973 war against Israel, such forces have not been seen in Sinai since the signing of the peace accord, which stipulates that the desert peninsula is to be a demilitarized zone.