However, Egyptian economists have defended the pact as the best economic choice for the country.
Hundreds of Egyptians demonstrated in Cairo on Tuesday, decrying the government's decision to create special industrial cooperation zones between Egypt, Israel and the US.
The zones, named qualified industrial zones (QIZ), are to be established in Cairo, Alexandria and the Suez Canal-Port Said region.
The agreement, pushed through by heavy US lobbying, will allow Egyptian exports to the US to be accorded duty-free status provided a minimum 11.7% of the goods are manufactured in Israel.
The trade pact comes on the heels of slowly improving Egyptian-Israeli ties, highlighted by Egypt's release of convicted Israeli spy Azzam Azzam.
But Egyptian critics of the trade agreement are saying the 11.7% 'made-in-Israel' stipulation will give their former wartime enemy too much economic leverage on the country.
Will the pact create a better
atmosphere in the Middle East?
According to the Israeli daily Haaretz, Egyptian demonstrators in downtown Cairo were chanting that "Egyptian workers are not for sale".
Some Egyptian opposition newspapers have charged that the idea for the QIZ was drawn up in Washington to benefit Israel and use Arab industry as a cheap labour force.
Not true, says Dr Jamal Abd al-Jawad, head of the department of international relations at Al-Ahram Centre for Political and Strategic Studies (ACPST).
"We do not agree with the description 'Israel is imposed on the Arab economies'. The partnership with Israel concerning goods allowed to enter US markets without custom tariffs is not 35% as reported but 11.75%," he told Aljazeera.
"This does not enable Israel to control Arab economies."
Textile green light
Despite the protests, the Egyptian government is maintaining that there is strong interest by local companies for inclusion in the QIZ.
Majdi Tulba, chairman of the Cairo Cotton Centre, believes the QIZ is the best, last hope for the much-maligned local textile industry.
Egypt is hoping the Israel pact
will revive its battered economy
"The only chance nowadays, and the only solution for Egypt, is the QIZ," he recently told the Cairo-based Business Today magazine.
Egypt's textile industry is its most viable economic powerhouse, employing nearly one million workers and accounting for more than a quarter of the total industrial production.
The Egyptian government is hoping, perhaps too enthusiastically, the QIZ deal will create several hundred thousand jobs in the next year. It points to the success story of similar trade agreements between Israel and Jordan, where exports to the US have mushroomed to nearly $800 million a year since 1999.