By Shaimaa Fayed and Asma Alsharif

CAIRO, June 30 (Reuters) - Egyptians and their security forces prepared for demonstrations on Sunday that may determine their future, two years after people power toppled a dictator and ushered in a democracy crippled by bitter divisions.

"The longest day," headlined government newspaper Al-Gomhuriya above pictures of two rival camps in Cairo. One was of Islamist supporters of President Mohamed Mursi, the other of protesters in Tahrir Square who said they wanted him out by day's end or they would sit there until he goes, like Hosni Mubarak in 2011.

Thousands of activists were gathering at those sites and at Mursi's suburban presidential palace, not far from the Islamist camp. Major rallies were not expected before late afternoon and streets in major cities were quiet as the working week resumed.

It remained unclear how many would turn out. Previous protests fizzled but these might not. The army warned it might intervene if politicians remain deadlocked and violence spiralled out of control.

State newspaper headlines - "Egypt gripped by fear", "Egypt under the volcano" - gave the government view: that liberal opposition leaders might let loose violent remnants of the old regime to overthrow the country's first freely elected leader.

Many independent papers urged people onto the streets on the very day that Mursi completes his first year in office: "Street to Mursi: One year's enough," headlined Al-Masry Al-Youm. Others referred to what many protesters will demand: "Red card for the president". Others went simply with: "Judgment Day".

Liberal leaders said nearly half the voting population - 22 million people - had signed a petition calling for new elections, although there is no one obvious challenger to Mursi.

With the long dominant, U.S-funded military waiting in the wings, and world powers fearing violence may unhinge an already troubled Middle East, Mursi's Muslim Brotherhood and radical allies pledge to defend what they say is the legitimate order.

Several people have been killed, including an American student, and hundreds wounded in days of street fighting.

Mursi calls his opponents bad losers backed by "thugs" from Mubarak's old secret police. He is banking on the "Tamarud - Rebel!" coalition being a damp squib. He met the army chief on Saturday as well as leaders of allied Islamist parties.

An economic crisis deepened by unrest and political deadlock might spur many less partisan Egyptians to join the rallies, due to start in the afternoon in Cairo. But many, too, are weary of turmoil and sceptical that the opposition's demand to reset the rules of the new democracy is better than soldiering on.

"CIVIL WAR"

U.S. President Barack Obama called on Egyptians to focus on dialogue. His ambassador to Egypthas angered the opposition by suggesting protests are not helping the economy.

Liberal leaders, fractious and defeated in a series of ballots last year, hope that by putting millions on the streets they can force Mursi to relent and hand over to a technocratic administration that can organise new elections.

"We all feel we're walking on a dead-end road and that the country will collapse," said Mohamed ElBaradei, a former U.N. nuclear watchdog chief, Nobel Peace Prize laureate and now liberal party leader in his homeland.

Religious authorities have warned of "civil war". The army insists it will respect the "will of the people".

Islamists interpret that to mean army support for election results. Opponents believe that the army may heed the popular will as expressed on the streets, as it did in early 2011 when the generals decided Mubarak's time was up.

That would depend on a massive turnout, which is uncertain. Islamists suspect that agents of the old order are intent on shedding blood to trigger a military intervention.

In Cairo, thousands were at Tahrir Square, seat of the Jan. 25 uprising of 2011. Others gathered outside the presidential palace several miles away, which was under heavy guard.

In a nearby suburban neighbourhood, the Muslim Brotherhood and allies who include former militant organisations have set up camp outside a mosque. Guarded by baton-wielding civilians in protective clothing, the Islamists said they would defend Mursi.

Both sides say they want to avoid violence but that has not prevented incidents in which the Brotherhood says several of its offices have been attacked and five of its supporters killed.

Among the Islamists at the camp in Cairo, Ahmed Hosny, 37, said: "I came here to say, 'We are with you Mursi, with the legitimate order and against the thugs'.

"This is our revolution and no one will take it from us."

U.S. CONCERN

The United States has evacuated non-essential diplomatic staff and families and Obama said protecting U.S. missions was a priority. He was criticised at home when the ambassador to Libya was killed last year in an attack on the consulate in Benghazi.

The Egyptian army, half a million strong and financed by Washington since it backed a peace treaty with Israel three decades ago, says it has deployed to protect key installations.

Among these is the Suez Canal. Cities along the waterway vital to global trade are bastions of anti-government sentiment. A bomb killed a protester in Port Said on Friday.

Mursi renewed an offer last week to include opponents in a new panel to review a disputed new constitution and has complained of a media campaign of vilification. The authorities have taken legal action against journalists and media owners.

Opponents cite that among evidence that the Brotherhood, suppressed for decades under Mubarak, aims to use its organised, vote-winning power to entrench itself and its Islamic agenda deep in the state, in much the same way as the ousted leader.

Observers note similarities with protests in Turkey this month, where an Islamist prime minister with a strong electoral mandate has been confronted in the streets by angry secularists.

With much of the Arab world in turmoil after the uprisings that also brought sectarian civil war to Syria, the fate of its biggest nation may be determined by events in the coming days. (Reporting by Asma Alsharif, Alexander Dziadosz, Shaimaa Fayed, Maggie Fick, Alastair Macdonald, Shadia Nasralla, Tom Perry and Yasmine Saleh in Cairo, Yusri Mohamed in Ismailia and Abdelrahman Youssef in Alexandria; Writing by Alastair Macdonald; Editing by Mark Heinrich)