The U.S. says the decision to hold back tanks, missiles, and attack helicopters does not affect its support for counter-terrorism efforts in the lawless Sinai peninsula, which borders Israel.

"They have considerable operational capability in the Sinai that they are using, and we are assisting them with sustaining those weapons systems that they do have which do overpower the extremists," said Assistant Secretary of Defense Derek Chollet.

Since Morsi's ouster, the Obama administration has been trying to reassure both pro-democracy activists and the military-led government that replaced him, says American University professor Akbar Ahmed. Ahmed feels that trying to play to both groups weakens U.S. standing in Cairo.

“If Egypt has a vacuum of power, authority, finances, someone is going to fill that. It's going to be either Russia, maybe China, or more immediately the Saudis," said Ahmed.

Saudi Arabia and the United Arab Emirates have both moved to help fund Egypt's interim government.

Considering the levels of funding coming from the Gulf monarchies, Democratic Congressman Ted Deutch feels the U.S. must take action to maintain relevance.

"Given the vast resources that Gulf states have provided to the interim government, we must act in a way to preserve our influence. Part of that is through assistance. Part of that is continuing to advocate for democracy," said Deutch.

Nonetheless, Acting Assistant Secretary of State Beth Jones says Washington is pushing for democracy.