The controversial deal supplied Israel with natural gas at lower than market prices.

The Egyptian Natural Gas Holding Company (EGAS) yesterday April 23, 2012 announced that it was scrapping a gas supply deal with Israel, complaining that it had not been paid by the Israeli-Egyptian firm, the BBC reported. But Israel denied the claim and warned Egypt that it was violating part of their 1979 peace treaty.

Egypt's military rulers have not yet commented on the deal's cancellation. The deal was widely unpopular in Egypt, but solidly backed by former President Hosni Mubarak who was forced to step down last year after mass protests. The termination of the gas deal between Egypt and Israel is more than just a trade dispute; it has serious political and diplomatic consequences.

The historic Camp David Accords ended 30 years of war between the two countries but only led to a cold peace. Since President Hosni Mubarak, an advocate of the deal, was ousted in 2011, relations between the two countries have deteriorated.

The pipeline delivering Egyptian gas to Israel has been attacked repeatedly. In September, there were riots outside the Israeli Embassy in Cairo after Egyptian policemen were killed on the border. Israeli forces had been pursuing militants who crossed illegally from Egypt to carry out a deadly attack. In recent weeks, the Egyptian media and Parliament have criticised Coptic Christians and the Grand Mufti of al-Azhar for visiting Jerusalem.

The latest development is another reminder that ties are unlikely to improve soon. Israel is worried about the rise of Islamists in Egypt and a new confidence among its general public about expressing anti-Israeli views.