Egyptian president Hosni Mubarak has refused to quit office, despite mounting speculation that he was about to.
Angry Egyptians are vowing to stage their most spectacular protest yet in Cairo on Friday to demand that he immediately resign.
Tens of thousands of people had gathered in Cairo's Tahrir Square on Thursday to watch Mr Mubarak deliver an address on state television amid numerous reports he was preparing to leave office immediately.
The Secretary-General of the ruling National Democratic Party had told the BBC he hoped Mr Murbarak would announce that he was handing over his power to vice-president Omar Suleiman.
The head of the United States Central Intelligence Agency had said it was likely that Mr Mubarak would step down.
However, in the televised speech, the president said Egypt is heading "day after day" to a peaceful transfer of power.
Mr Murbarak repeated an earlier statement that he would stand down in September this year and that he would hand over some of his powers to Mr Suleiman before this.
Speaking later, Mr Suleiman said Mr Mubarak had empowered him to preserve security and stability and restore normality.
Mr Suleiman said he is committed to do whatever he can to ensure a peaceful transfer of power, in accordance with the constitution.
Big crowds in Tahrir Square
Protesters watching the speech on big screens in Tahrir Square reacted with howls of anger and chants of "Down, down with Hosni Mubarak", the ABC reports.
Hundreds threw their shoes at the screen the address had been broadcast on.
The army's High Council made a statement on television before Mr Mubarak's speech, saying it was ready to respond to the "legitimate demands of the people".
At the same time, an army commander Hassan al-Roweny told protesters in Tahrir Square that "everything they want will be realised".
A correspondent in the square, Ruth Sherlock, told Radio New Zealand the mood quickly switched from jubilation to depression when Mr Mubarak's speech was broadcast.
She says most of the demonstrators are promising to return on Friday morning in bigger numbers and head towards Parliament.
Ruth Sherlock says many protesters had been suspicious that the suggestion Mr Mubarak might stand down was a trick.
Before Mr Mubarak spoke, United States President Barack Obama declared the world was watching history unfold and a moment of transformation in Egypt.
Mr Obama also directly addressed the young people of Egypt who have swelled the massive protests in Cairo, saying America would do all it could to ensure a genuine transition to democracy.
After Mr Mubarak's speech, the White House said Mr Obama would meet with his national security team.