By Tom Finn and Tom Perry
CAIRO, Aug 13 (Reuters) - One Muslim Brotherhood member was shot dead and at least 11 people wounded in Egypt on Tuesday, security sources said, with the Islamist group accusing plain clothes police of firing on their march.
The killing could harden the standoff between the Brotherhood, which is demanding the reinstatement of deposed Islamist President Mohamed Morsi, and the army-backed government.
Authorities have held back from clearing two Brotherhood protest camps in Cairo, and a religious authority made some progress in establishing negotiations, but the shootings and other street clashes showed Egypt remained dangerously divided.
Thousands of Morsi supporters marched to the Interior Ministry earlier in the day and were confronted by residents who threw stones and bottles and taunted them as "terrorists". Police fired teargas at the demonstration which had brought Cairo traffic to a standstill.
"There's no going forward with negotiations, the only way is back. Morsi must be reinstated," said Karim Ahmed, a student in a blue hard-hat who waved a picture of Morsi as he flung rocks at a ministry building.
Things remained quiet at the two pro-Morsi protest camps despite the government's frequent demands that protesters end a sit-in that has lasted more than six weeks.
Some officials wish to avoid a bloody showdown that would damage the government's efforts to present itself as legitimate, while hardliners in the army and security forces fear they are losing face to the Brotherhood and want to move in.
More than 300 people have already died in political violence since Morsi's overthrow on July 3, including dozens of his supporters killed by security forces in two separate earleir incidents.
Senior Brotherhood politician Farid Ismail said he did not expect the Interior Ministry to break up the encampments by force because of the likely casualty toll.
"It would be a big crime in addition to the crimes already committed, because it will result in a great cost in terms of massacres and dead," he said. "There are very large numbers, complete families, men, wives, children."
Morsi became Egypt's first freely elected leader in June 2012 but failed to tackle deep economic malaise and worried many Egyptians with his apparent efforts to tighten Islamist rule.
Morsi and other Brotherhood leaders are now in detention after the army moved in, supported by huge demonstrations against his rule.
Foreign mediators say the Brotherhood must accept that Morsi will not be restored but that the Brotherhood must be brought back into the political process.
An initiative by Al-Azhar, a top religious authority, offered some hope that the opposing sides might yet be coaxed into negotiating a peaceful resolution after the collapse of international mediation last week.
The Nour Party, the second biggest Islamist group, forecast that Al-Azhar-backed talks would happen very soon, while the Brotherhood signalled it was ready to take part as long as they were on the right terms.
"If they stick to the rules we're asking for, yes," Brotherhood spokesman Gehad el-Haddad said, adding that talks must be based on the "restoration of constitutional legitimacy".
The effort, however, is complicated by enmity between the Brotherhood and Al-Azhar's Grand Sheikh Ahmed el-Tayeb who had supported the army's overthrow of Morsi.
In a move that his critics said was reminiscent of long-time strongman Hosni Mubarak, Interim President Adli Mansour swore in at least 18 new provincial governors, half of them retired generals, reversing Morsi's appointment of civilians.
The "April 6" pro-democracy youth movement, which played a prominent role in the revolt that brought down Mubarak in 2011, was among those calling the appointments a step backwards.
"Holding on to the old faces that contributed to ruining political life before the revolution is a new failure for the current administration," it said on its website.
Aside from a fragile economy, the government faces a host of other challenges, including growing militancy in the Sinai Peninsula.
At least four soldiers were wounded by a blast in North Sinai, where militants frequently attack soldiers and policemen and where violence has escalated since Morsi's overthrow. (Writing by Angus MacSwan in Cairo; Editing by Mark Heinrich and Robin Pomeroy)
BEFORE YOU GO
Captions by the Associated Press