* Official says not in U.S. interest to make decision
* Lawmakers suggest they may amend U.S. laws on coup, aid (Recasts, adds details, background)
By Arshad Mohammed and Patricia Zengerle
WASHINGTON, July 25 (Reuters) - The Obama administrationsidestepped a decision on cutting off most of the annual $1.55billion of U.S. aid to Egypt by saying on Thursday it does notplan to rule on whether a military coup took place in Egypt.
The stance resolves a dilemma for the White House: whetherto comply with a U.S. law that requires eliminating most aid inthe event of a military coup or to find that the armed forces'July 3 ouster of President Mohamed Mursi was not in fact a coup.
But the decision to refrain from a coup designation, whichwas conveyed to members of Congress in closed-door briefings,takes away an important point of leverage for Washington to pushEgypt's generals toward new elections.
The question of whether a coup took place has vexed theWhite House. It wants to be seen as supporting democraticallyelected leaders, but Mursi was believed by U.S. officials tohave ruled in an ineffective and autocratic manner.
Under U.S. law, most aid must stop to "any country whoseduly elected head of government is deposed by military coupd'etat or decree" or toppled in "a coup d'etat or decree inwhich the military plays a decisive role."
But an Obama administration official said on condition ofanonymity, "The law does not require us to make a formaldetermination as to whether a coup took place, and it is not inour national interest to make such a determination."
One way the White House may try to retain leverage is tonegotiate with Congress to attach strings to future disbursementof military and economic aid to try to keep pressure on theEgyptian military.
The suspension earlier this week of the delivery of fourF-16 fighters to Egypt is an example of how the United Statescould show its displeasure over the military's handling of thepolitical transition or its treatment of street protesters.
EGYPT BRACES FOR FRIDAY RALLIES
A deeply polarized Egypt braced for bloodshed on Friday inrival mass rallies summoned by the army that ousted Mursi, whoemerged from the Muslim Brotherhood to become Egypt's firstfreely elected president, and by the Islamists who back him.
Both sides warned of a decisive struggle for the future ofthe Arab world's most populous country, convulsed by politicaland economic turmoil since the 2011 uprising that ended 30 yearsof autocratic rule by Hosni Mubarak.
The U.S. decision not to take a position on whether Mursiwas toppled in a military coup was laid out by Deputy Secretaryof State William Burns in separate closed-door briefings forsenior members of the Senate and the House of Representatives.
Speaking after the session with Burns, Senator Bob Corker,the top Republican on the Senate Foreign Relation Committee,said the Obama administration might never make a decision on thematter and suggested that U.S. law needed to be changed.
"No determination has been made. It's possible that nodetermination will ever be made," Corker told reporters.
The Egyptian armed forces deposed Mursi on July 3 after hugestreet protests against his rule, clearing the way for lastweek's installment of an interim Cabinet charged with restoringcivilian government and reviving the economy.
Current and former officials have said the administrationhas no appetite for terminating aid, which runs at about $1.55billion a year, $1.3 billion of which goes to the military, forfear of antagonizing one of Egypt's most important institutions.
Nor does it wish to increase instability in the mostpopulous Arab nation, which is of strategic importance becauseof its peace treaty with close U.S. ally Israel and its controlof the Suez Canal, a vital waterway for the U.S. military.
"Egypt is a very strategic country in the Middle East andwhat we need to be is an instrument of calmness," Corker toldreporters, suggesting that the U.S. laws be changed so as toallow greater flexibility.
"We need to deal with our laws in such a way that allow usto continue to be that instrument of stability in the region,"he added. "It's likely that very soon we will try to deal withthis issue, which is a quandary, legislatively." (Additional reporting by Matt Spetalnick; Editing by PeterCooney)