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History will clarify what events on Thursday led to the expectation that Egyptian dictator Hosni Mubarak would step down, only for Mubarak to announce that he would remain. By making a transition to real democracy less likely and clear, the chance of a much worse option in Egypt only increases. Mubarak’s behavior has been encouraged by the Obama administration’s mixed signals and lack of a coherent policy. The President should set a new course before the situation deteriorates further.

On Thursday, Mr. Obama’s CIA Director, Leon Panetta, testified to Congress that there was a “strong likelihood” that Mubarak would step down later that day. Shortly thereafter, Mubarak did anything but that, instead vowing to remain in Egypt for life.

On the same day, President Obama said that “America will continue to do everything that we can to support an orderly and genuine transition to democracy in Egypt.” Unfortunately, that statement does not constitute a clear policy, since the key question is whether we want Mubarak to stay or go. Coming from the man who remained largely silent during pro-democracy protestors in Iran in the previous two years, it also lacks credibility.

When combined with actions like Secretary of State Clinton calling Egypt “stable” and Vice President Biden complimenting Mubarak, it is increasingly clear to officials across the Middle East that the White House does not know what it wants or how to get it.

As a result of this and reported encouragement from fellow dictators like Saudi King Abdullah, Mubarak appears to have decided he can still salvage some of the hold he has possessed over Egyptian power for three decades.

A prolonged period of chaos under Mubarak increases the chances of a worst-case scenario. It creates a favorable atmosphere for Islamist parties like the Muslim Brotherhood to organize themselves and take advantage of those who become radicalized and inclined toward violence as non-violent means fail to displace the dictator. It will also further degrade Egypt’s economy, which will make it harder for any democratic or non-Islamist government that emerges to demonstrate success — another potential opening for Islamists.

Mr. Obama should take this latest development as a chance to alter his course. Our policy should be actively steering Egypt toward a genuine democracy — rather than vaguely hoping for one — and preventing any role in government for Islamists. The first step must be for Mubarak to cede all power and leave the country. Mr. Obama should call for this publicly.

Reports on Thursday initially indicated that Mubarak would cede power to a military council. That is a temporary arrangement we should seek, as the army is the part of the Egyptian power structure over which the U.S. has the most influence. We have funded that army for more than three decades, and presently provide it with approximately $1 billion per year.

Our message to the army should be simple: Now is the time to eject Mubarak and transition to a fully professional military force under democratic, civilian control. We should indicate that our continued partnership and financial support depend on this. The army’s conduct so far indicates this outcome is possible.

Next, President Obama should replace our anonymous ambassador in Egypt with a retired general like Richard Myers or Peter Pace. It is critical now to have a chief envoy who can work with the Egyptian military and also be a powerful advocate for the democrats of Egypt. The new envoy should take the example of Mark Palmer, the ambassador Ronald Reagan sent to Hungary, as democratic activity there accelerated in the late 1980s. Palmer used the rare but effective diplomatic device of clarity. When the time was right, he was in the streets with the democratic protesters. It helped clarify the future for the dictators.

Finally, we should also help tilt the scale toward democracy in Egypt via political and economic means.

The President should enlist a corps of Egyptian-Americans to go to Egypt and help pro-democracy parties with party-building and other organizational matters. We should also regain our past proficiency at political warfare and bring this to bear against Islamists in Egypt and elsewhere in the region.

Paradoxically, pro-democracy economic aid should come from terminating current U.S. economic assistance of over $250 million per year. Dumping money into a corrupt system simply augments corruption, as has been proven not only in Egypt, but also in places like Haiti and Pakistan. Instead, we should repeat what we did in Eastern Europe after democratic revolutions there by fielding “Enterprise Funds” to aid non-corrupt private-sector businesses. This is a proven way to create middle class jobs and successful democracies.

So far, President Obama has failed the test of presidential leadership during the revolution. He seems unable or unwilling to articulate U.S. interests, much less how to use the tools of government to advance them. It is not too late for him to change course. But until he does this, his actions are making the worst-case scenario of an Islamist Egypt more likely.

Christian Whiton is a former U.S. State Department senior adviser and is a principal at D.C International Advisory. He is a frequent contributor to Fox News Opinion.